The Tobin Tax

Paper Summary:

On August 15, 1971, Richard Nixon announced that the US dollar would no longer convert to gold, effectively ending the Bretton Woods system. Tobin suggested a new system for international currency stability, and proposed that such a system include an international charge on foreign-exchange transactions. The Tobin Tax was born. This paper examines how the Tobin Tax aims at reducing short-term speculative currency transactions in order to enhance more stability within today's international financial markets. It concludes that the issue of a Tobin Tax not only arouses questions about the way to address the problem of financial speculation but also expresses the necessity of introducing more democratisation within the international economic management, by calling into question the neo-liberally sustained effectiveness of de-regulated markets that actually has proved faulty in the view of recent major financial crisis.

From the Paper:

"However, Patomaki puts the emphasis on four major problems characterising the international financial system that the Tobin tax can hardly address. Since tax-avoidance is likely to remain in a global economy dominated by neo-liberal principles of de-regulation, offshore centres would not be reduced by the introduction of a currency transactions tax. Moreover, the problem of "short-termism" would not be easily addressed by the Tobin tax with respect to speculative attacks of a large extent in the context of devaluation. Then Patomaki evokes the problem of "further flow of resources to financial markets": the extraction of tax revenues from financial capital movements would not necessarily be used to sustain non-financial actions but could also re-enter the financial process in a neo-liberal economy. Finally, he denounces the problem posed by the "governance of credit and investments": the Tobin tax is not likely to do anything against "the asymmetric dependence of most governments on the Bretton Woods institutions or the credit-rating agencies" (PATOMAKI, 2001: 221)."

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