FTT: The reality behind the headlines
Friday 9 December 2011 - by Shiv Mahalingham
The proposed financial transaction tax has generated a huge amount of column inches in recent months and there is undoubtedly a surge of momentum behind it.
A tax that applies in all jurisdictions to all transactions would result in a significant administrative burden on businesses and tax administrations.
It is important to remember that the FTT or 'Tobin Tax' was not designed to raise tax revenue; it was intended to control short term capital flows and reign in the destabilising activities of currency speculators after the collapse of the Bretton Woods system of pegged but adjustable exchange rates (US dollar defined as having the value of 1/35 of an ounce of gold and other countries then defining currency values in terms of the US dollar).
In reality, certain currency speculation and capital movement can be stabilising and is required to 'oil the wheels' of international markets. As readers will appreciate, it is also basic economics that capital moving from a jurisdiction where the marginal product of capital is low to a jurisdiction where the marginal product of capital is high, will increase world output and improve efficiency in resource allocation.
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