Advantages And Disadvantages Of Tobin

James Tobin, he is the first presented his plan for a tax on currency transaction in 1978. He a Nobel Prize-Winning economist and have a lot experience in economists. His plan to increase slightly the cost of trading in currencies, by introducing a currency transaction tax. The tax proposals around range from 0.003% to 0.5%. During James Tobin give his lectures at Princeton University, his come out the idea of Tobin Tax and proposed in 1972. The function of Tobin Tax is more to reduce the volatility in the exchange rate. A uniform international payable tax payable on all spot transaction involving the conversion of one currency into another, in both domestic security markets and foreign exchange markets, the tobin tax would discourage speculation by making currency trading more costly. From the that case, will give effect to the short-term capital flow and it will decrease the volume and the volume will become unstable, and from that it will leading

This is because, in a making of structured of the tobin tax, the purpose tax would impact and give disadvantages for the operations of the foreign financial market and at the same time their create liquidity problems without prevent the speculation. For the solution for overcome the problem, they come out with two-tier structure which is consisting of a low tax rate for normal transaction and exchange surcharge on profits. It will involve in short-term transactions deemed where it will be attacks from the speculative to the currencies. Under this structured, the exchange rate can freely moved within a band, but, impact of the movement, there will be give impact to the tax where the will be argument between the market exchange rate and closet margin. Exchange rates will kept on the target range of the taxation rather than the reduce of international reserves and central bank