Nov

9

Brown’s Tobin tax

by Mark Crosby | Filed Under Economics 

Gordon Brown has suggested that a tax on financial transactions be introduced, a proposal that France and Germany are keen on.  For those interested in this idea there is a nice summary of the issues in a book titled “The Tobin Tax: Coping with Financial Volatility” edited by Ul Haq, Kaul and Grunberg in 1996.  Among those in favour of the tax was John Langmore, who has a chapter on what kind of revenues could be raised with different tax rates. The point is that a lot of revenue can be raised with very small tax rates, given the amount of daily financial transactions globally. The issues come down to how to collect, share, and distribute the tax, how to stop avoidance, and whether such a tax is neccessary and desirable. Tobin’s main objective was to reduce financial volatility, but there is still debate over whether such a tax would raise or reduce volatility – Milton Friedman was of the view that speculation was stabilising, so why would you reduce speculation if you wanted to reduce volatility. The appeal of such a huge revenue source to politicians is obvious, and given this it is a little surprising that US Treasury Secretary Geitner and the Canadian Minister of Finance have already said that they won’t support such a tax. It’s not like their public finances are rosy, and I suspect this issue will be raised again soon.

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