Tobin Tax Research Articles

Tobin Tax, Carry Trade, and the Exchange Rate Dynamics

Tobin Tax, Carry Trade, and the Exchange Rate Dynamics

Cryptocurrency Market and Tax Regulations in Turkey: an Analysis in the European Emerging Economy

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.

Old and new proposals for global monetary reform

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.

A compound Tobin tax: A political economy investigation

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

With the relaxation of capital controls and enriching capital flow channels, the potential negative impact of short-term capital flight on emerging market economies (EMEs), such as China, has been developing. This paper develops a small open-economy dynamic stochastic general equilibrium (DSGE) model to address the policy coordination between capital control and monetary policy, thereby introducing the Tobin tax on capital flow. We simulate the applicability of the Tobin tax and its collaboration with monetary policy in the context of crossborder capital flows triggered by external monetary policy spillovers. Regarding the capital outflow from EMEs caused by the external monetary policy, we find that “enterprises Tobin tax + interest rate cut” or “household Tobin tax + interest rate hike” can prevent capital outflow. Based on the welfare analysis, we find that the former is more feasible. The simulation results suggest that although the Tobin tax can ease the pressures on monetary authority by restraining short-term capital outflows, its ability to stabilize the financial markets is limited.

Gross Capital Inflows in Indonesia: Exploring Bonanzas and Sudden Stops

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.

Market Depth, Leverage, and Speculative Bubbles

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

This paper analyzes the effects of transfer taxes targeting property flips on house prices and investment decisions. We study a 2011 reform in Taiwan which required sellers of non-owner occupied properties to pay a surcharge of up to 15% of the full sale price for properties held for two years or less. Linking the universe of personal income tax returns to transaction records, we show immediate and substantial bunching at the two-year holding period threshold, but negligible changes in overall prices. According to our missing mass estimates, the tax generated a 75% drop in one-year flips and a 40% drop in overall second home sales volume. We use shocks to housing net worth from inheritances received after decedents’ untimely deaths to show that investors with more portfolio exposure pass through the tax to buyers. While low-wealth out-of-town investors account for most of the drop in sales volume, locals and non-residents earn similar holding period returns in the pre-reform period. We use spatial and time variation in the severity of typhoon seasons to estimate a 20% share of noise trading prior to the reform. We combine our estimates of the noise trading share and change in short-term sales volume to parametrize a model of optimal financial transaction taxes. The optimal transfer tax on short-term sales is 4%, at most, which is close to the flat transfer tax rates imposed in most major real estate markets. Our results point to market segmentation and inventory effects as key constraints on the effectiveness of property flip taxes towards promoting housing affordability.

The Whack-a-Mole Game: Tobin Taxes and Trading Frenzy

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.

Behavioral agent-based framework for interacting financial markets

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.

The dangerous ineffectiveness of negative interest rates: the case of Switzerland

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.

Bubbles in assets with finite life

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

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’ decision to lend to traders with limited liability in a bubble is endogenous. Bubbles reduce welfare of future investors. 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.

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

We aim to make two contributions to the literature on the effects of transaction costs on financial price volatility. First, by augmenting a double differencing approach with a research design with three ingredients (a common set of companies simultaneously listed on two stock exchanges, binding capital controls, and different timing of changes in transaction costs), we obtain a control group that has identical corporate fundamentals as the treatment group. We apply the research design to Chinese stocks that are cross-listed in Hong Kong and Mainland China. Second, we allow transaction costs to have different effects in markets with different maturity. We find a significantly negative relationship, on average, between stamp duty increase and price volatility. However, this average effect masks some important heterogeneity. In particular, when institutional investors have become a significant part of the traders’ pool, we find an opposite effect. Overall, our results suggest that a Tobin tax could work in an immature market, but can backfire in a more developed market.

О проблемах валютной сферы

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

托宾税对我国外汇储备适度规模的预期影响研究

Study of the effect of a Financial Transaction Tax on the corporate cost of capital

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.

Institutional change and economic development: a conceptual analysis of the African case

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.

Complexity Triggered by Economic Globalisation— The Issue of On-Line Betting-Related Match Fixing

Complexity in mainstream economics consists in high intermediary consumption of mathematics. A new approach to complexity economics dwells upon path-dependent global systems; their emergence and evolving organisation. The focus here is on the complexity of the real economic world due to globalisation. On-line betting related match-fixing is a case in point about which the article presents non-exhaustive empirical evidence and shows how it is analysed with the standard model of the economics of crime. There is no room for complexity in such an individualistic approach to corrupt behaviour applied to bet-related fixes. A more complex model is sketched based on interactions between a global (though underground) market for fixes and the actual partly legal, partly illegal global sport betting market. These interactions exhibit how complex is the issue of combating betting-related match fixing. Reviewing those major policies envisaged for containing the latter—prohibition; sanctions; regulation; privatisation (betting rights)—the article opts for a global ‘Sportbettobin’ tax on sport betting gains; in the same vein as the famous Tobin tax on international capital transfers. The novelty in this approach is a variable (increasing) rate applied to increasing tranches of taxation (gains) which should dry up the worst cases of on-line bettingrelated match fixing.

The Impact of the Tobin Tax in a Heterogeneous Agent Model of the Foreign Exchange Market

We explore possible effects of a Tobin tax on exchange rate dynamics in a heterogeneous agent model. To assess the impact of the Tobin tax in this framework, we extend the model of De Grauwe and Grimaldi (Eur Econ Rev 50(1):1–33, 2006) by including transaction costs and perform numerical simulations. Motivated by the importance of the market microstructure, we choose to model the market as being cleared by a Walrasian auctioneer. This setting could more closely resemble the two-layered structure of foreign exchanges at daily frequency than a price impact function, which is often adopted in similar studies. We find that the Tobin tax can deliver a moderate reduction of return volatility and kurtosis. In addition, simulations indicate that the Tobin tax reduces the degree of mispricing in the time series, which is primarily achieved by eliminating long-lasting deviations from fundamental value.