Abstract
The current paper develops the microeconomic case for a Tobin tax. It combines the noise-trader literature with the Tobin-tax-policy literature. Noise traders cause economic losses by inappropriately cashing out their investments. A Tobin tax can reduce such activity, thereby conferring a benefit on fundamentals investors. The paper identifies the conditions under which these gains would be largest and provides guidelines as to whether a tax is warranted. There is a trade-off because Tobin taxes discourage fundamentals investors from trading, and there are occasions when they would rationally choose to trade but do not because of the tax.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Baker, D., Pollin, R., and Schauberg, M. (1995): “The Case for a Securities Transactions Tax: Taxing the Big Casino.” Working paper, Economic Policy Institute, Washington, DC.
De Long, J. B., Shleifer, A., Summers, L. H., and Waldman, R. J. (1990): “Noise Trader Risk in Financial Markets.”Journal of Political Economy 98: 703–738.
Felix, D., and Sau, R. (1996): “On the Revenue Potential and Phasing In of the Tobin Tax.” InThe Tobin Tax: Coping with Financial Volatility, edited by M. Haq, I. Kaul, and I. Grundberg. Oxford: Oxford University Press.
Friedman, M. (1953a): “The Methodology of Positive Economics.” InEssays in Positive Economics. Chicago: Chicago University Press.
— (1953b): “The Case for Flexible Exchange Rates.” InEssays in Positive Economics. Chicago: Chicago University Press.
Keynes, J. M. (1936):The General Theory of Employment, Interest and Money. London: Macmillan.
Palley, T. I. (1997): “Managerial Turnover and the Theory of Short-Termism.”Journal of Economic Behavior and Organization 32: 547–557.
— (1999): “International Finance and Global Deflation: There Is an Alternative.” InGlobal Instability and World Economic Governance, edited by J. Grieve-Smith and J. Michie. Cambridge: Cambridge University Press (forthcoming).
Stein, J. C. (1989): “Efficient Capital Markets, Inefficient Firms, in a Model of Myopic Corporate Behavior.”Quarterly Journal of Economics 104: 655–669.
Tobin, J. (1978): “A Proposal for International Monetary Reform.”Eastern Economic Journal 4: 153–159.
Tornell, A. (1990): “Real vs. Financial Investment: Can Tobin Taxes Eliminate the Irreversibility Distortion?”Journal of Development Economics 32: 419–444.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Palley, T.I. Speculation and Tobin taxes: Why sand in the wheels can increase economic efficiency. Zeitschr. f. National#x00F6;konomie 69, 113–126 (1999). https://doi.org/10.1007/BF01232416
Received:
Revised:
Issue Date:
DOI: https://doi.org/10.1007/BF01232416