IMF Working Papers

Financial Transactions Taxes

Author/Editor:

Janet Gale Stotsky ; Parthasarathi Shome

Publication Date:

August 1, 1995

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.

Series:

Working Paper No. 1995/077

Subject:

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

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."