This article offers an overview of the Financial Transaction Tax (FTT) proposed by the European Commission, with a focus on its innovative character and origins in the "Tobin Tax." The study examines FTT’s potential impact on the European financial market and non-EU investors. The FTT is notable for being the first tax introduced in the European Union under enhanced cooperation, a procedure allowing certain Member States to implement legislation when unanimity is not achieved. Moreover, it is the first tax based on the principle of issuance of the underlying asset, irrespective of the taxpayer's residence, thus affecting even non-EU investors. The analysis includes a literature review of academic discourse on the FTT, discussing its objectives, potential economic ramifications, challenges in implementation, and the behavioral changes it may induce among market participants. Key findings highlight that the FTT, while aiming to generate revenue and stabilize markets, faces challenges such as potential market disruption, tax avoidance, and the complexity of ensuring harmonization across different legal systems. The article concludes by discussing the implications of the FTT’s implementation, emphasizing the need for an “all in, all out” approach to avoid distortions and ensure effectiveness.

This paper introduces open financial intermediaries into a multi-sector dynamic stochastic general equilibrium (DSGE) model of a small open economy, and studies the path and mechanism of the transmission of occasional shocks from one sector to other sectors, including monetary policy shocks, financing cost shocks, foreign capital withdrawal probability shocks, and foreign capital scale shocks, as well as the impact of financial openness and capital procyclical effects on this. The study found that compared with a single price-based monetary policy, the Tobin tax is more effective in cross-border capital flows. Instead of improving cross-border capital flows, a single monetary policy will have an adverse impact on the capital market. When the overseas situation is unstable, it is necessary for the government to use fiscal and monetary means to maintain short-term economic stability and a reasonable structure of household balance sheets. When foreign capital moves on a large scale, the investment structure will change significantly, but in the long run, capital prices will return to a reasonable level after a significant increase.

Tobin Tax, Carry Trade, and the Exchange Rate Dynamics

The aim of the article: The purpose of this study is to provide a thorough review of the current state of cryptocurrency market and how governments perceive and deal with the threats and opportunities brought by the block chain technology. Cryptocurrencies were certainly the most popular investment in the last decade with a skyrocketing trading volume. However, cryptocurrency abilities in money laundering, financing terrorism and tax evasion overshadow the great opportunities and potential of this new technology. Therefore, the major economies in the world have been working on an efficient and effective strategy to control and tax the cryptocurrency market. In this study, the current state in Turkey regarding cryptocurrency taxation is analysed and a tax system is proposed. The authors claim that the Tobin tax, or in other words, low tax rates would be the best tax system to be applied in Turkey. Methodology: The study is based on a detailed literature review on the subject, academic papers, news releases and legal acts of the USA, Europe and Turkey. Different attitudes of varied groups are discussed and proposed solutions in the subject are being considered. Results of the research: Cryptocurrency market has a great potential and block-chain technology is full of opportunities. However, it is essential to control this market without harming the appeal of cryptocurrencies, yet this is not an easy task. Therefore, we argue that Turkey should extend the usage of cryptocurrencies, create a tax strategy with low tax rates and we claim that a regulation similar to the Tobin tax application would be effective here.

The post-Bretton Woods monetary system in characterised by the hegemony of the US dollar despite increasing features of a multi-currency system. There is no other currency in sight to succeed the dollar. Yet there are severe downsides that seem to increase on several fronts. The paper diagnoses five major challenges: exchange rates driven by non-fundamentals, current-account imbalances, a hierarchy of interest rates (including dependency from US monetary policy), commodity-price bonanzas, and lack of global liquidity in hard currency. Major reform proposals are reviewed, focusing on reforms of Special Drawing Rights on the one hand and on a new exchange-rate system on the other. Regarding the latter, a novel system is proposed, focused on the largest foreign-exchange market, the dollar–euro market. The proposal includes target zones, mutual interventions, and a Tobin tax on currency transactions. A precondition is strengthening the international role of the euro. The currency blocs on both sides of the North Atlantic could form a bloc of more than 80 countries. The new system of managed floating could later be extended by other reserve currencies. More exchange-rate stability around the globe would reduce the country risk premiums in the Global South and trigger other positive externalities.

The paper focuses on international tax proposals and analyzes rationales and challenges for adopting a com-pound global tax. It is proposed here that such a compound global tax instrument would mainly need to focus on two tiers. The one, based on the U.S. President Joe Biden?s 2021 suggestion, would need to close off tax avoidance and tax evasion possibilities for large multinational and transnational corporations; and the other, based on the James Tobin?s 1972-tax proposal, would seek to eliminate the speculative dimension of international foreign exchange dealings. These tiers are discussed extensively in this contribution, concluding with the suggestion that policy coordination is paramount.

Capital control and monetary policy coordination: Tobin tax revisited

This paper examines episodes of capital bonanzas and sudden stops in Indonesia by utilising binary response models and several episode-identification approaches. Our identification suggests that whenever bonanza episodes occurred, capital sudden stop episodes followed in a more extended period. The estimations demonstrate that domestic factors are relatively dominant in determining the capital bonanzas, and the federal funds rate has a more significant impact on inducing the probability of capital sudden stops in Indonesia. We also found that Turkey and South Africa are the most contagious economies for Indonesia. This paper proposes some policy reforms to enhance the stability of capital inflows in Indonesia, including financial regulation and public finance policies such as a reverse Tobin tax and market-driven public debt rules.

Abstract We develop a model of rational bubbles based on leverage and the assumption of an imprecisely known maximum market size. In a bubble, traders push the asset price above its fundamental value in a dynamic way, driven by rational expectations about future price developments. At a previously unknown date, the bubble will endogenously burst. Households optimally decide whether to lend to traders with limited liability. Bubbles increase welfare of the initial asset holders, but reduce welfare of future households. We provide general conditions for the possibility of bubbles depending on uncertainty about market size, traders’ degree of leverage, and the risk-free rate. This allows us to discuss several policy measures. Capital requirements and a correctly implemented Tobin tax can prevent bubbles. Implemented incorrectly, however, these measures may create the possibility of bubbles and can reduce welfare.

Flip or Flop? Tobin Taxes in the Real Estate Market

Abstract To dampen trading frenzy in the stock market, the Chinese government tripled the stamp tax for stock trading on May 30, 2007. The greatly increased trading cost triggered a migration of the trading frenzy from the stock market to the warrant market, which was not subject to the stamp tax. This migration exacerbated a price bubble in the warrant market. Our analysis of investor account data uncovers not only large inflows of new investors to the warrant market but also greatly intensified trading by existing warrant investors. This episode exemplifies the so-called “whack-a-mole” game in financial regulations.

PurposeThis paper aims at developing a behavioral agent-based model for interacting financial markets. Additionally, the effect of imposing Tobin taxes on market dynamics is explored.Design/methodology/approachThe agent-based approach is followed to capture the highly complex, dynamic nature of financial markets. The model represents the interaction between two different financial markets located in two countries. The artificial markets are populated with heterogeneous, boundedly rational agents. There are two types of agents populating the markets; market makers and traders. Each time step, traders decide on which market to participate in and which trading strategy to follow. Traders can follow technical trading strategy, fundamental trading strategy or abstain from trading. The time-varying weight of each trading strategy depends on the current and past performance of this strategy. However, technical traders are loss-averse, where losses are perceived twice the equivalent gains. Market makers settle asset prices according to the net submitted orders.FindingsThe proposed framework can replicate important stylized facts observed empirically such as bubbles and crashes, excess volatility, clustered volatility, power-law tails, persistent autocorrelation in absolute returns and fractal structure.Practical implicationsArtificial models linking micro to macro behavior facilitate exploring the effect of different fiscal and monetary policies. The results of imposing Tobin taxes indicate that a small levy may raise government revenues without causing market distortion or instability.Originality/valueThis paper proposes a novel approach to explore the effect of loss aversion on the decision-making process in interacting financial markets framework.

This paper argues that the negative interest rate adopted by the Swiss National Bank in 2015 has elicited a series of negative consequences across the Swiss economy. It has led an increasing number of agents to invest their savings in the real-estate market, whose prices have overheated, threatening the eruption of a housing crisis. It has also induced a number of financial institutions to turn to riskier businesses in an attempt to continue to earn some returns, thereby increasing financial fragility at systemic level. The paper suggests that a small Tobin tax on all Swiss-franc purchases may contribute to the support of domestic economic activities much better than negative rates of interest.

We study the speculative value of a finitely lived asset when investors disagree and short sales are limited. In this case, investors are willing to pay a speculative value for the resale option they obtain when they acquire the asset. Using martingale arguments, we characterize the equilibrium speculative value as a solution to a fixed point problem for a monotone operator $$\mathbb F$$ . A Dynamic Programming Principle applies and is used to show that the minimal solution to the fixed-point problem is a viscosity solution of a naturally associated (non-local) obstacle problem. Combining the monotonicity of the operator $${\mathbb {F}}$$ and a comparison principle for viscosity solutions to the obstacle problem we obtain several comparison of solution results. We also use a characterization of the exercise boundary of the obstacle problem to study the effect of an increase in the costs of transactions on the value of the bubble and on the volume of trade, and in particular to quantify the effect of a small transaction (Tobin) tax.

Market Depth, Leverage, and Speculative Bubbles

One fundamental and two taxes: When does a Tobin tax reduce financial price volatility?

The new trend of global economic growth for now appears unstable. A certain threat to stability is represented by continuous growth of the world financial markets without significant correction, which leads to overheating of certain indicators. Besides, the growth of interest rates in the developed markets threatens the stability of currency in countries with developing markets, especially where floating exchange rate has been introduced. The risky situation is not helped by the tensions in geopolitics. External shocks will inevitably transfer on the internal economics of Russia due to free floating of the ruble. Currency is a significant channel of such transfer: any deterioration of situation in Russia would contribute to volatility of currency market and depreciation of ruble. The article analyzes the specifics of currency sphere in Russia today, studies negative and positive sides to ruble depreciation. The quality improvement and formation of comparative conditions in the currency market of Russia is necessary for stability and increasing rates of economy growth. Most branches of Russian economy benefit from stable ruble exchange rate. Adding to that, the expansion of economic sanctions announced by the USA to come into effect at the end of summer 2018 can contribute to volatility and further depreciation of the ruble. The Bank of Russia should take active measures towards ruble stability, prevention of depreciation and minimization of negative consequences for Russian economy. The article suggests several such measures to provide stability and prevent the growth of currency speculation: low currency position, lower leverage, Tobin tax, etc.

托宾税对我国外汇储备适度规模的预期影响研究

ABSTRACTWe study the impact of a Financial Transaction Tax (FTT or Tobin Tax) on the corporate cost of capital. We consider the results on the impact of transaction costs on implied volatility and then use the utility maximization of a market-maker and its asymptotic solution. The FTT impact on volatility, in highly liquid equity option markets, is within two decimals (‘the tick value’) and is insignificant. The volatility impact is considerable for illiquid option markets especially long-dated equity options, used for the hedging of credit default swaps (CDS). The credit spread increase is computed using a structural model, and amounts between 30 and 60 basis points (b.p). per annum, for 5–20 year maturities, and a volatility level of 30%. The impact decreases with the corporation leverage ratio. We calibrate from the CDS market the implied volatility for six European corporations and find an increase in spreads by up to 60%. For a corporation with a 343 b.p. 5-year CDS spread, the increase amounts to 174 b.p. On the basis of this sample, the impact we find is between 5 and 20 times higher than the one computed in the study of Lendvai et al. which has been used by European Union authorities to assess the impact on the cost of capital.

PurposeThe purpose of this paper is to explain the African socio-economic development and policy design problems using the new institutional economics methodology. The paper emphasizes the importance of carefully considering the policy environment setting before changing the rules of the society (institutional change) and making policy choices.Design/methodology/approachA conceptual approach is used to explain why major economic development policies fail in Africa and the developing world as a whole. To illustrate policy-environment-dependent institutional and policy change decision making, examples of potential institutional and policy changes are examined for Ghana’s financial, retail, and land resource sectors.FindingsIt is argued that the concept of institutional efficiency must be looked at quite differently from the Pareto-optimal concept in the neoclassical economic theory. This is because institutional analysis leans more toward normative rather than positive economics. The paper explains the counterintuitive findings that although the African business environment is low on trust due to high ethnic diversity, African business depends more on trust than contracts –weak enforcement of institutions accounts for such twists. Potential institutional changes that can help address specific socio-economic developmental challenges are suggested based on the characteristics of the African business environment.Research limitations/implicationsThe paper lays bare several research hypotheses that can now be tested using the available data. These include hypotheses that strong economic growth precedes growth in the stock market activity (not the other way round); an asymmetric Tobin tax that taxes conversion into foreign currencies more than conversion into local currency reverses local currency depreciation; and for import-dependent countries, strengthening the local currency provides a positive shock to local production and budget balance.Originality/valueThe paper illustrates the pitfalls associated with blanket application of theoretical frameworks without proper contextualization. A promising way out for weak African economies is to adapt the theoretical economic predictions to local environments and help refine general economic theory through their experiences.