IMF Working Papers

International Financial Flows and Transactions Taxes: Survey and Options

By P. Bernd Spahn

June 1, 1995

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P. Bernd Spahn International Financial Flows and Transactions Taxes: Survey and Options, (USA: International Monetary Fund, 1995) accessed November 23, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Tobin has suggested that exchange rate volatility be controlled through a tax on international financial transactions. This analysis shows that the Tobin tax as a pure transaction tax is not viable. The tax would impair financial operations and create international liquidity problems. It is also unlikely to deter speculation. However, a possible alternative would be a two-tier rate structure—consisting of a low-rate transaction tax plus an exchange surcharge. The exchange rate could move freely within a “crawling” exchange rate band, but overshooting the band would trigger a tax on an “externality,” which is the discrepancy between the market exchange rate and the closest margin of the band. The scheme is inspired by the European Monetary System. However, exchange rates would be kept within the target range through a tax, not through interest policy or central bank sterilization and, eventually, the depletion of international reserves.

Subject: Currencies, Currency markets, Exchange rates, Financial markets, Financial transaction tax, Foreign exchange, Money, Taxes, Transaction tax

Keywords: Cost of capital, Currencies, Currency markets, Equalization tax, Exchange rates, Exchange surcharge, Financial transaction tax, Foreign exchange, Global, Interest rate, Rate of return, Round-trip tax, Spot market, Stamp tax, Tax discrimination, Tax loophole, Tax rate, Tobin tax, Transaction tax, Transactions tax, Uniform transaction tax, WP

Publication Details

  • Pages:

    62

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1995/060

  • Stock No:

    WPIEA0601995

  • ISBN:

    9781451847994

  • ISSN:

    1018-5941

Notes

Discusses the Tobin Tax.

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