Is a transactions tax an effective means to stabilize the foreign exchange market?

Is a transactions tax an effective means to stabilize the foreign exchange market?

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The desirability of a transactions tax in the foreign exchange market, or Tobintax, depends on whether the tax deters short-term, destabilizing trade.While supporters claim Bike Accessories - Trainers that the tax would be a deterrent for short-term capital flows, critics contend that the deterrent capability of the tax would be limited.This paper attempts to resolve some lingering questions about the arithmetic of a transactions tax, and concludes that a tax would raise the required return from trade for any time horizon, and thus deter all trades driven by small expected capital gains (i.e.

, smaller than the square of one plus the tax rate), and not necessarily those driven by a short horizon of the investor.The paper then explores the consequences of this result on the effectiveness of the tax within Sofa Beds competing paradigms and concludes that a Tobin tax is not likely to be an effective means to reach the declared objectives.