Tobin tax

A Tobin tax is a tax on financial transaction's Tobin's original proposal was to tax foreign exchange transactions, to both discourage short term specualtion and to raise revenue in a fairly painless way.

More recent proposals have expanded the idea to taxes on a broader range of financial transactions, and proposed to specifically target banks. This type of tax is sometimes called a Robin Hood tax to distinguish it from the original Tobin tax.

Objections to the Tobin tax

The Tobin Tax has obvious attractions, but it has a number of disadvantages. The greatest of these is that an effective Tobin Tax needs to be imposed globally: otherwise traders can evade it by shifting their trading to another country.

The Tobin Tax may also reduce market efficiency and liquidity. Because currency traders make money on very small spreads even a tax of a few basis points would drastically reduce volumes.

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