Tobin Tax Pdf Download For IAS -UPSC Civil Services Examination

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Proposed by James Tobin – a worldwide tax on all foreign exchange transactions i.e. when foreign capital enters a country or leaves

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  • Aim is to check speculative flows (FII), long term investment like FDI will not be affected
  • It would reduce exchange rate volatility and improve macroeconomic performance by bringing in revenue
  • South East Asia currency crisis of 1997 is attributed to hot money

A Tobin tax, which was suggested by the Nobel Memorial Prize in Economic Sciences Laureate economist James Tobin, was originally defined as a tax on all spot conversions of one currency into another.

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Tobin’s original tax was intended to put a penalty on short-term financial round-trip excursions into another currency. Rather than a consumption tax paid by consumers, the Tobin tax was meant to apply to financial sector participants as a means of controlling the stability of a given country’s currency.

By the late 1990s, , the term Tobin tax was being incorrectly used to describe all forms of short term transaction taxation, whether across currencies or not – another term for these broader tax schemes is Robin Hood tax due to tax revenues from the speculator funding general revenue. More exact terms however apply to different scopes of tax.

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