Financial Transactions Taxes

ByJanet Gale Stotsky, Parthasarathi Shome

August 1, 1995

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

Financial transactions taxes have recently gained attention as a possible means to influence the behavior of financial markets and to reduce destabilizing capital flows. One variation is a tax on all foreign currency conversions, often termed a “Tobin tax.” This paper suggests that these taxes would probably not produce the desired effects and would be difficult to design and implement. It is unclear that the possible advantages in reducing some short-term speculative trading would outweigh the possible disadvantages in impairing the efficiency of financial markets. From an administrative perspective, without a broad international consensus and application, these taxes are likely to be easily avoided.

Subject: Balance of payments, Capital flows, Currencies, Financial markets, Financial transaction tax, Money, Stock markets, Taxes, Transaction tax

Keywords: Capital flows, capital gains tax, cash market, cost of capital, Currencies, East Asia, financial asset, financial instrument, financial market participant, Financial transaction tax, futures contract, Global, market, market efficiency, market volatility, South Asia, Stock markets, Transaction tax, WP

Pages:
20
Volume:
1995
DOI:
https://doi.org/10.5089/9781451849950.001
Issue:
077
Series:
Working Paper No. 1995/077
Stock No:
WPIEA0771995
ISBN:
9781451849950
ISSN:
1018-5941

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Notes

This paper is a revised version of a background paper prepared for the Fund's International Capital Markets--Developments, Prospects, and Key Policy Issues study of May 1995. It also analyzes the effects of the "Tobin tax."

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