Tobin or not Tobin

Supporters of a tax on currency market transactions – a so-called Tobin tax – reckon it could raise much-needed billions.

But at what political and financial cost? Critics claim any government or bloc that unilaterally agreed to such a tax would see capital flee into more welcoming markets before the ink had dried. Bankers in Switzerland and Britain, for example, would rub their hands if the European Union introduced a Tobin tax.

Is the issue so black and white?

Tobin tax

James Tobin was a Nobel prize-winning American economist. In 1972 he proposed a tax on currency market transactions. His concern was rapid international financial flows, putting constraints on the ability of governments and central banks to pursue the right policies for their national economies.
 
European finance ministers should map out plans on a financial transaction tax by March, German Chancellor Angela Merkel said on January 16, after Britain pledged to block any such tax across the European Union.
  
Merkel backs the Tobin tax but there is no national consensus. Italy supports the idea if it is applied EU-wide. Other supporters include: Spain, Argentina, Brazil and South Africa, the United Nations, and 350 international economists including Joseph Stiglitz, Paul Krugman and Jeffrey Sachs.
 
Critics, especially banks, warn that such a tax simply scares off traders. Sweden, one of the most outspoken opponents of the idea, saw trading migrate from Stockholm to London when it introduced its own levy in the mid-1980s.