{
  "title": "International Financial Flows and Transactions Taxes: Survey and Options",
  "publication": "IMF Working Papers, June 1, 1995",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/international-financial-flows-and-transactions-taxes-survey-and-options-1136",
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  "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.",
  "sections": [
    {
      "heading": "Overview and research question",
      "content": "- Author: P. Bernd Spahn\n- Publication date: June 1, 1995\n- Publication type: IMF Working Paper (Working Paper No. 1995/060, Issue: 060)\n- Pages: 62\n- DOI: https://doi.org/10.5089/9781451847994.001\n- ISBN: 9781451847994\n- ISSN: 1018-5941\n- Core question: Can a tax on international financial transactions (the Tobin tax) control exchange rate volatility without unacceptable side effects?"
    },
    {
      "heading": "Key findings",
      "content": "- The Tobin tax as a pure transaction tax is not viable.\n- A pure transaction tax would:\n  - Impair financial operations.\n  - Create international liquidity problems.\n  - Be unlikely to deter speculation.\n- An alternative two-tier rate structure is proposed:\n  - Consists of a low-rate transaction tax plus an exchange surcharge.\n  - The exchange rate could move freely within a “crawling” exchange rate band.\n  - Overshooting the band would trigger a tax on an “externality,” defined as the discrepancy between the market exchange rate and the closest margin of the band.\n- The proposed scheme is inspired by the European Monetary System.\n  - Difference from EMS: 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."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Do not implement a pure Tobin-style transaction tax because of operational and liquidity risks and limited effectiveness against speculation.\n- Consider a two-tier structure combining:\n  - A low-rate uniform transaction tax to limit distortions to normal financial operations.\n  - An exchange surcharge applied when the market exchange rate overshoots a predefined crawling band, taxing the “externality” between the market rate and the nearest band margin.\n- Use the tax mechanism, rather than interest-rate policy or sterilization, to enforce adherence to the exchange-rate band, recognizing that this shifts the enforcement mechanism from monetary operations to fiscal/tax measures."
    },
    {
      "heading": "Subject areas and keywords",
      "content": "- Subjects: Currencies, Currency markets, Exchange rates, Financial markets, Financial transaction tax, Foreign exchange, Money, Taxes, Transaction tax\n- 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\n\nSource: P. Bernd Spahn, \"International Financial Flows and Transactions Taxes: Survey and Options\", IMF Working Papers 1995, 060 (1995), June 1, 1995.\n\n---\n\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/international-financial-flows-and-transactions-taxes-survey-and-options-1136"
    }
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    "Authors: P. Bernd Spahn",
    "Published: June 1, 1995",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451847994.001",
    "Author: P. Bernd Spahn",
    "Publication date: June 1, 1995",
    "Publication type: IMF Working Paper (Working Paper No. 1995/060, Issue: 060)",
    "Pages: 62",
    "DOI: https://doi.org/10.5089/9781451847994.001",
    "ISBN: 9781451847994",
    "ISSN: 1018-5941",
    "Core question: Can a tax on international financial transactions (the Tobin tax) control exchange rate volatility without unacceptable side effects?",
    "The Tobin tax as a pure transaction tax is not viable.",
    "A pure transaction tax would:",
    "An alternative two-tier rate structure is proposed:",
    "The proposed scheme is inspired by the European Monetary System.",
    "Do not implement a pure Tobin-style transaction tax because of operational and liquidity risks and limited effectiveness against speculation.",
    "Consider a two-tier structure combining:",
    "Use the tax mechanism, rather than interest-rate policy or sterilization, to enforce adherence to the exchange-rate band, recognizing that this shifts the enforcement mechanism from monetary operations to fiscal/tax measures.",
    "Subjects: 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"
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