Abstract
At various times since Tobin floated the idea of a tax on foreign exchange transactions the concept has been revisited - particularly in times of financial market turmoil when it has been proposed as a means of reducing exchange rate volatility. Recently, Harcourt (1997) suggested a further refinement of the Tobin tax to apply only to 'speculative transactions'. This paper identifies three types of foreign exchange transactions - informed trades, liquidity trades and speculative trades - and highlights the difficulties in differentiating between these types of transactions. It is not clear whether some (or what) proportion of speculative trades is of benefit to the economy. Further, the undesirability of exchange rate volatility itself has not been established. In particular, the costs and benefits of exchange rate volatility have not been compared with the alternatives of interest rate volatility under a fixed exchange rate regime or the market innovations resulting from the imposition of a Tobin tax.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: Economic Papers: A journal of applied economics and policy
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
