Policy Documents

A Short Note on the Tobin Tax: The Costs and Benefits of a Tax on Financial Transactions

Raman Uppal –
July 1, 2011

Almost each time volatility in equity, debt, or currency markets increases, there are cries to introduce a tax of financial transactions, first proposed in Tobin (1974). This tax is motivated by the view that the excess volatility in financial markets is the result of trading by “speculators"; thus, even a small tax on financial transactions would "throw some sand in the wheels" of financial markets, and hence, by slowing down the trading activity of speculators would reduce volatility. In this article, we discuss the costs and benefits of such a tax on financial transactions.