The Tobin tax is a financial transaction tax on international foreign exchange transactions proposed in 1972 by the American economist James Tobin (1918–2002), but not yet introduced . Tobin wanted to curb short-term speculation on currency fluctuations through a very low tax on all international currency transactions. He hoped to achieve that the exchange rates of currencies reflect the long-term real economic phenomena more strongly than the short-term speculative expectations. Such a tax lowers the liquidity of the markets. If liquidity gets too low, the volatility of the financial markets could even increase, as certain theoretical assumptions and empirical studies suggest.
Tobin's earlier demand for foreign exchange taxation was taken up by Ignacio Ramonet in 1997 in an article in the newspaper Le Monde diplomatique , which led to the founding of the globalization-critical organization attac . To this day, the Tobin tax is viewed by critics of globalization as a central demand. The idea was taken up again in early 2012 by France and Germany with regard to the countries of the euro zone .
An alternative to taxing foreign exchange transactions is the bank levy . This was introduced in Germany due to the financial crisis in 2007 and has been provided by financial service providers and credit institutions since 2010. The levy is intended to impose the costs of systemic risk in lending and trading on the financial sector.
How the Tobin Tax works
The tax rate proposed by Tobin would be levied uniformly on all cross-border money transfers worldwide and would be between 0.05 percent and 1.0 percent. For conventional transfers such as direct investments or the transactions involved in the trade in goods, this tax would be negligible, since the costs incurred are irrelevant in relation to the profits incurred per transaction. In speculative transfers that rely on small and short-term fluctuations in exchange rates to generate profits ( day trading ), levies at the low level of a Tobin tax would eliminate the very low profits per transaction.
The following calculation example can serve to illustrate the particular burden of short-term transactions: With a Tobin tax of 0.2% per transaction, a burden of approx. 12 0, would be charged for a capital amount that moves internationally once every month for a year. 2 = 2.4% (exactly: 1- (1-0.002) 12 = 2.37%). If the amount is transferred once a week, the burden would grow to around 52 · 0.2% = 10.4% (exactly: 1- (1-0.002) 52 = 9.89%). For one transaction per working day, the amount would be taxed at approx. 52 · 5 · 0.2% = 52% (exactly: 1- (1-0.002) 52 · 5 = 40.58%). In 1996, over 80% of global foreign exchange transactions were "round trips", commuting back and forth between two currencies within a week.
According to its proponents, the Tobin tax is intended to prevent short-term trading in foreign exchange, as this, in their opinion, has negative effects on economies, but not longer-term foreign exchange trading, which is safe for them. Paul Krugman believes such a tax is effective enough to limit ultra-short speculation periods that have shown undesirable effects.
Since the 1990s, there have been more and more currency crises, especially in emerging markets, which, according to many observers, were not caused by real economic problems or economic policy errors, but rather by speculative transactions (e.g. Asian crisis , tequila crisis , crises in Russia, Turkey, Brazil, Venezuela). The sudden devaluation of the affected currencies led to a shortage of capital in the countries, which had negative consequences for their economic development. By taxing capital flows, speculation with foreign exchange should be curbed in order to limit the volatility of the markets and to reduce the influence of the so-called beauty contest speculators from Tobin . With relatively small profits for the capital owners, noticeable losses would be expected of the national economies, which Tobin describes as disproportionate.
Another aspect brought in by Tobin is the support of national autonomy in fiscal and monetary policy . Both areas are massively influenced by financial markets, which, for example, can force a central bank to raise interest rates by building up devaluation pressure on a currency.
An aspect that is particularly important in the debates among globalization critics is the revenue effect. The revenues from an EU-wide rollout at a tax rate of 0.01% would be US $ 38 billion annually, a global rollout would generate revenues of around US $ 125 billion. These taxes could be levied by an international organization like the UN, which could also use them to finance itself. There is also frequent discussion about using the tax through the World Bank for development aid or for environmental protection measures.
At Tobin, the use of the tax does not play a significant role in his concept. Only with a view to enforcement does he cite the income as helpful if the individual collecting states are allowed to keep them as an incentive to introduce them.
In 1995, Tobin co-authored a study according to which a limited number of countries should introduce the tax even without a global consensus. The loan of the currency in question to banks and bank branches outside the economic area concerned (e.g. the EU) would have to be controlled and taxed.
In the last years of his life, Tobin himself has distanced himself from the majority of proponents of the Tobin tax, among other things because he saw his name as appropriated by the movements critical of globalization and because the discussion deviates from his original concept in essential points and objectives focuses on the control of foreign exchange flows and not on the financing of development aid . According to Tobin, the effect of the Tobin tax should primarily serve the exchange rate stability regardless of the use of the tax amounts gained. According to Tobin, environmental policy or economic development is at best a side effect of the tax.
At the time, the former German Sparkasse President Heinrich Haasis spoke out in favor of the introduction of a transaction tax in connection with the national debt of Greece as a better solution than creditors' participation or bank levies .
In an expert opinion, the results of which were heard by the Bundestag finance committee, the Worms economics professor Max Otte draws the conclusion: "The financial transaction tax has exactly the intended steering effect: it curbs speculation and does not hinder business with a reference to the real economy."
Paul Bernd Spahn , holder of the chair for public finance at the Johann Wolfgang Goethe University in Frankfurt am Main , published a feasibility study on the Tobin tax on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ). The tax he proposed has now largely caught on among proponents of foreign exchange taxation.
Spahn recommended the introduction of a politically feasible Tobin Tax (German politically feasible Tobin tax , PFTT for short). This should mainly serve the generation of income and the general containment of speculative transactions. They should be combined in emerging markets with a second control (the exchange rate normalization duty , German donation to the normalization of the exchange rate , short ERND), which should prevent the emergence of currency crises. With the ERND, Spahn is responding to the problem that a Tobin tax, due to its low tax rate, cannot prevent the sharp fluctuations in the exchange rate when a currency crisis occurs. Its concept is also known as the Tobin cum circuit breaker .
When an ERND is introduced, a corridor would be defined for the currency of the country concerned (see also: exchange rate range ) in which it can fluctuate in relation to an anchor currency set by the central bank . In order to enable the exchange rate to be adjusted to real economic conditions, this corridor would represent a moving average, for example of the exchange rate over the last twenty days. If the exchange rate deviates from this corridor, the difference between the exchange rate and the target corridor is subject to a tax of up to 100%. According to Spahn, this would prevent the exchange rate from deviating from the target corridor and the emergence of currency crises, at least in the absence of serious structural errors in the financial system of the country concerned.
The BMZ's scientific advisory board assessed the study critically and did not rule out negative effects on development policy goals. For Spahn, too, the Tobin tax was not a suitable instrument of development policy. Like Tobin, he criticized the ideological elements in the discussion. For him, the political realization of human rights, democracy and education is more helpful than the uncontrolled influx of capital.
Empirical economic research on the effectiveness of the Tobin tax
There are now a number of case studies in international economic research in which the connection between transaction costs and the volatility of financial prices is empirically investigated. These case studies are based on regulatory changes in the electronic market process that were introduced on numerous exchanges in the 1990s to reduce transaction costs. Some results show a positive relationship between transaction costs and the volatility (fluctuation range) of the market price.
A number of economists are therefore questioning whether higher transaction costs can actually stabilize the financial markets. The study by Hau (2006) is exemplary. The result of the study says that an increase in the tick size (smallest possible price change) led to an increase in volatility on the Paris Stock Exchange, a result that, in the opinion of the author, can also be transferred to other markets.
Other research has shown that changes in volatility vary depending on the size of the market and alternatives (tax havens).
For many critics, the biggest problem with the Tobin tax, which is conceived as an ideal theory, is that it is difficult to implement worldwide, since the tax can only be introduced sensibly in full international harmony. Even if the most important economic nations were to reach a consensus on this question, there would be a single country that refuses to implement it, the risk of foreign exchange trading migrating to offshore financial centers , which would completely remove it from sensible regulation.
It is also often criticized that a large part of the short-term business with small profit margins corrects imbalances in the currency markets (see arbitrage trading ) and can thus also have positive effects on the economy. The Tobin tax would disrupt this business and thus even increase exchange rate fluctuations. This criticism is empirically supported by research on the connection between the level of transaction costs and the volatility of the prices.
In principle, speculators create additional liquidity through their trading and thus ensure that z. B. normal buyers or sellers of currencies almost always meet a trading partner. A Tobin tax would reduce the number of speculators and thus the liquidity and thus (in addition to the Tobin tax itself) ensure higher trading costs.
Also, the tax in its unmodified form (this criticism does not apply to the Spahn tax , see above ) would hardly be able to influence actual currency crises, such as those that occurred in Southeast Asia in 1998, because of very strong fluctuations in the relative value of the various currencies the potential gains or losses of currency speculators soar that a low tax like the one proposed by Tobin would have little moderation.
In some cases, however, the avoidance of currency crises through capital controls is also generally viewed as not useful. According to this reading, currency crises are solely the consequences of a failed economic policy, which in any case would occur at some point and would first become apparent in the relatively unstable financial markets. This was also the position of the IMF during the various financial crises in recent years. It must be noted, however, that this position is also rejected by liberal economists such as Jagdish Bhagwati or Paul Volcker and magazines such as the Economist .
There is also criticism that the aim of the tax is merely to increase tax revenue. From this point of view, the effort to collect the tax is too high, since the development of other sources of income (e.g. by increasing existing taxes) would be more efficient.
Both the parliaments of France and Belgium have decided to introduce the Tobin tax, but only if all EU member states introduce it. At the end of January 2005, the then French President Jacques Chirac and then also the then Federal Chancellor Gerhard Schröder spoke out for the first time in favor of taxing international foreign exchange transactions in favor of developing countries. Critics believe that this should be seen against the background that such a tax is not capable of international consensus, since it is primarily rejected by the American government and there is therefore no prospect of such proposals being implemented. Meanwhile, a rethinking of the German conservative parties has begun, so the European parliamentarian Manfred Weber (CSU, internal policy spokesman for the EPP parliamentary group ) called for the introduction of the Spahn tax.
The then Austrian Federal Chancellor Schüssel proposed in July 2005 that the EU should introduce the Tobin tax (see web link). This should enable the EU to raise its own funds. And - that was Schuessel's actual goal - that would make EU budget planning much more conflict-free. In January 2008, the idea of an EU-wide foreign exchange transaction tax was taken up again by Chancellor Alfred Gusenbauer ( SPÖ ) and Vice Chancellor Wilhelm Molterer ( ÖVP ) as part of the “ Eco- Social Forum Europe ” . In an interview, Gusenbauer confirmed that the Austrian federal government would work within the framework of the European institutions for the feasibility and uniform implementation of such an EU-wide tax. The EU Commission has so far spoken out against the introduction of a Tobin tax.
In Switzerland there are stamp duties . They are levied on the one hand in the form of the issuance tax on the issue of participation rights (e.g. shares) and on the other hand in the form of the turnover tax on trading in participation rights and other documents, in particular bonds. However, the latter tax in particular has a large number of exceptions.
In Canada, the House of Commons passed a resolution in 1999 calling on the government to introduce the tax “in coordination with the international community”.
In mid-November 2009, a group of seven Democratic Congressmen tabled a bill called " Let Wall Street Pay for the Restoration of Main Street Act, " which provides for taxation of stock market transactions.
On October 17, 2009, the “ Tax against Poverty ” campaign started with an open letter to the coalition parties of the German government demanding that they campaign for a financial transaction tax. This campaign launched an online petition on November 6, 2009 with the following request: “ The German Bundestag may decide: The Federal Government and Bundestag are called upon to introduce a financial transaction tax and to ensure that it is also implemented by other countries. This tax includes all speculative financial transactions. Until this tax has been implemented in the EU or worldwide, preparatory steps should be taken at national level, e.g. B. supporting parliamentary resolutions or the introduction of a stock exchange tax. “The online petition was successful, so the Bundestag has to deal with it.
During the UN Climate Change Conference in Copenhagen in December 2009, the EU decided to speak out in favor of the tax and called on the International Monetary Fund to tackle the introduction of the tax. According to the European Union, money could be made available for climate protection.
At the beginning of 2010, the CSU also spoke out in favor of introducing a speculation tax, on January 15, 2010, through the adoption of the “Berlin Declaration”, the federal board of the CDU. On February 8, 2010, however, Federal Finance Minister Schäuble distanced himself from the introduction of a Tobin tax. Chancellor Merkel agreed to her EU partners to examine the introduction of a financial transaction tax. In May 2010, the coalition of the CDU, CSU and FDP ruling in Berlin agreed on the demand for an international financial market tax, but left open whether it was a financial transaction tax or a financial activity tax (taxation of salaries and bonuses for bank managers).
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