Tobin Tax

In this article, we give you a brief about the concept in economics called the Tobin Tax, named after economist James Tobin. This is useful for the UPSC prelims exam.

A Tobin tax, which was suggested by the Nobel Memorial Prize in Economic Sciences Laureate economist James Tobin, was originally defined as a tax on all spot conversions of one currency into another. Tobin’s original tax was intended to put a penalty on short-term financial round-trip excursions into another currency. Rather than a consumption tax paid by consumers, the Tobin tax was meant to apply to financial sector participants as a means of controlling the stability of a given country’s currency.

By the late 1990s, the term Tobin tax was being incorrectly used to describe all forms of short-term transaction taxation, whether across currencies or not – another term for these broader tax schemes is Robin Hood tax due to tax revenues from the speculator funding general revenue. More exact terms, however, apply to different scopes of tax.

Consider the following statements:

  1. Tobin Tax was suggested by James Tobin.
  2. Tobin Tax was meant to be applied to the financial sector.

Which of the following statements is correct:

  1. Only 1
  2. Only 2
  3. Both 1 & 2
  4. None of the above

Answer: c

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