Geography Reference
In-Depth Information
The Basic Mechanism of Tobin-type Taxes
Commenting on his proposed tax, Tobin (1996: 154) stated:
It would be an internationally agreed uniform tax, administered by each
government over its own jurisdiction. Britain, for example, would be respon-
sible for taxing all inter-currency transactions in Eurocurrency banks and
brokers located in London, even when sterling was not involved.
It is estimated that between US$1.5 and 2.0 trillion are traded daily on
foreign exchange markets around the world. This represents a large
market - and one that is potentially very volatile. It is estimated that
only 5 to 10 per cent of the total sum traded is necessary to finance
global trade. The remainder effectively amounts to speculative trading,
that is making profits from short-term changes in currency rates. It is
reckoned that in two-thirds of all currency transactions, the money is
moved into a foreign currency for less than seven days. Tobin-type
taxes involve a levy of around 0.10 to 0.25 per cent on such global finan-
cial activities. Initially in proposing such a tax, Tobin suggested, 'let's
say, 0.5 per cent of the volume of the transaction'.
Initially at least, it seemed that Tobin himself appeared to regard the
funds raised by such taxation as a mere by-product of producing greater
financial stability. However, it is estimated that this would presently
yield between US$ 100 and 300 billion per year. Many sources assume
that at present around US$ 250 billion per annum would be raised, that
is, over five times the total amount that is given in aid around the
world. Although formidable issues would have to be faced in collecting
and allocating such monies, it is generally argued that revenues should
be collected by national central banks and then deposited with a United
Nations body such as the United Nations Development Programme
(UNDP) or United Nations Educational, Scientific and Cultural
Organization (UNESCO). Tobin originally suggested the World Bank or
the International Monetary Fund should carry out such a function.
The US$250 billion that could be raised each year by a Tobin tax
only makes full sense when we consider it alongside what might actu-
ally be achieved with such tranches of money. For example, it has
long been estimated that as little as US$8 billion per year would be
enough to establish universal primary education on a global basis.
Meanwhile, the United Nations Development Programme has calcu-
lated that US$80 billions are needed to eliminate the worst forms of
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