Robin Hood Tax

Readers Question: Also what are the negatives to the Robin Hood Tax that has been suggested and is it akin to the suggested European transaction tax?

A ‘robin hood tax’ is a popular name for a Tobin tax that was proposed by nobel laureate James Tobin. Initially, the idea was to place a small tax on foreign currency trades. Although a small %, the volumes of foreign currency traded would mean that this would raise substantial sums. Since its first proposal, others have suggested a more widespread tax on trades in shares, bonds, options and other complex financial instruments such as credit default swaps.

Supporters suggest such taxes:

  • Would raise substantial sums
  • Help redistribute income within society
  • Play a role in discouraging speculation which can destabilise the wider economy
  • Can be more efficient than higher income taxes. (higher income taxes of more than 50% can create disincentives to work)
  • Such a tax has been supported by many prominent economists such as Joseph Stiglitz.

Potential Problems of Robin Hood Tax

  1. The main argument against a Tobin style tax is that it would cause financial companies to move to other countries where they can avoid the tax. For a financial centre like London, a Tobin tax might cause a big drop in the number of companies who operate from London.
  2. To some extent this argument is mitigated if the tax is adopted on a global scale. However, critics argue that it is very difficult to get global co-operation. There will always be the incentive to not charge tax and seek to attract big financial firms to that country.
  3. It could make certain assets more illiquid and make it more difficult for firms to respond to investment opportunities.
  4. Effective implementation would be very difficult because it would be hard to prevent cross-border arbitrage and attempts to avoid the tax.
  5. Discouraging purchases of currency and assets could actually increase price-volatility as investors would be less able to hedge against price fluctuations.

Related

By on October 12th, 2011

One thought on “Robin Hood Tax

Leave a Reply

Your email address will not be published. Required fields are marked *