This blog is mainly a personal storage site for articles and papers that interest me. They will mainly be about financial markets, current policy issues and articles that relate to these topics.
Saturday, February 20, 2010
Robin Hood Tax
A nice example from Tim Harford of the risk that Tobin tax increases volatility.
The tax would certainly be attractive if, like a tax on carbon dioxide or congestion, it reduced destructive activities. But would it? James Tobin and John Maynard Keynes both proposed taxes on financial transactions and each believed that the tax would reduce financial volatility. This is possible but far from obvious, when you realise that the tax might encourage bigger, more irregular financial transactions. An analogy: if I have to pay a charge whenever I use a cash machine, I make fewer, larger withdrawals and the amount of money in my wallet fluctuates more widely. Bear in mind, too, that the most bubble-prone asset market is for housing, which is bought in very lumpy, long-term chunks