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Anti-Globalizers Support a Tax on Financial Transactions

Daily Policy Digest

Trade Issues

Wednesday, September 05, 2001

Anti-globalization forces are pushing for a small tax on foreign exchange transactions. Called the "Tobin tax," after Nobel Prize-winning economist James Tobin of Yale University, it was originally proposed primarily to curb excessive volatility in foreign exchange markets, but has been seized upon by anti-globalization extremists.

The United Nations is interested in the Tobin tax as an independent revenue base, freeing it from the need to get appropriations from member governments. However, a June 26 UN report, in reviewing the views of "skeptics," makes the following points:

The tax would be "too complex to implement" and its economic effects would be "somewhat ambiguous."

Evasion of a Tobin tax would be simple unless imposed worldwide at a uniform rate; but even then, alternative financial instruments could still allow traders to avoid the tax.

Although the tax rate may appear low relative to the total volume of foreign exchange trading, which is on the order of $2 trillion per day, it would be very large relative to the profits on such trading.

In a 1996 paper, International Monetary Fund economist Janet Stotsky noted that a Tobin tax would play havoc with monetary policy.

And in a 1995 paper published in the Economic Journal, economists Peter Garber and Mark Taylor emphasize that because a Tobin tax can be evaded, it would have to be extended eventually to include ALL financial transactions.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, September 5, 2001.

For text
http://www.ncpa.org/oped/bartlett/bartlett01.html

For Stotsky paper
http://www.imf.org/external/pubs/ft/
fandd/1996/06/pdf/stotsky.pdf

For more on Globalization
http://www.ncpa.org/pd/trade/trade3.html

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