The role for the Tobin tax in the reform of the global financial system (in English)
Philip Arestis and Malcolm Sawyer
The turmoil on the financial markets of the East Asian economies in 1997, the sharp falls in the exchange rates of many countries, and the subsequent deep recessions in many of those economies have focused much attention on the role of financial markets both domestically and globally. The sharp changes in stock market values and in exchange rates do not seem compatible with any change in ‘fundamentals’ or with the operation of efficient financial markets. The purpose of this paper is to consider whether the introduction of a ‘Tobin tax’, that is a tax on foreign exchange transactions, complemented by capital controls would contribute to the construction of a better world financial system. The Tobin tax, at least in its modern formulation, began with Tobin’s 1972 Janeway lecture at Princeton, Tobin (1974, see also 1966, 1978, and Eichengreen, Tobin and Wyplosz, 1995) in which he specifically proposed a tax on foreign exchange transactions as a way of limiting speculation, enhancing the efficacy of macroeconomic policy in the process and raising some tax as a by-product. Some official interest in a transactions tax has been expressed by the United Nations Development Programme (1994) and UNCTAD (1995) who have seen its possibilities for raising large amounts of money which could be used to finance development – Tobin suggests that ‘the revenue potential is immense, over $1.5 trillion a year for the 0.5% tax’ (in UNDP, 1994, p.70) (see also Michalos, 1997, pp. 23-4). This paper proposes to examine these possibilities. It concludes in favour of a tax on foreign exchange transactions, but it sees problems in a co-ordinated implementation of such a tax.The suggestion is that a Tobin tax should be seen as part of a package of measures including capital controls. These measures are intended to contain the extent and frequency of financial crises which are embedded in the current climate of globalization of free market ethos.
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