The Tobin tax or Tobin Tax is a tool created by James Tobin, an American professor at YALE University, in 1978, against financial speculation.
It consists of a rate that is charged on all currency exchange actions, with the aim of reducing the speed of speculative capital.
Its tax base consists of very short-term transactions, double speculative direction and financial arbitrage in the interbank market, since those who acquire currencies to speculate carry out a very high number of transactions and generally operate with a low profit margin.
The higher the frequency of transactions, the higher the burden of the tax. Thus, it is intended to discourage short-term transactions, without damaging international trade, long-term capital flows, or adjustments in the value of currencies as a result of changes in the real economy.
The idea is to create a tax on exchange operations whose rate must be low, to penalize only purely speculative round-trip operations in the very short term between currencies, and not investments. Suppose, for example, that a rate of 0.1% is applied to all exchange operations and that the speculator has a monthly horizon. As each transaction aimed at obtaining an exchange profit implies a round trip between two currencies (two exchange operations), for the operation to be advantageous, the speculator must expect a return greater than 0.2% during that month (in case Otherwise, the profit obtained from speculation will be absorbed by the rate).
The reasoning remains the same if the speculative horizon is one day (which is frequent). In other words, with a rate of 0.1%, most of these short-term speculative arbitrations would be discouraged, as they must be taxed on each movement, while longer-term operations (one year or more) would not be so harmed, since they would only pay at the beginning and at the end of the operation.
In the next video lesson, Professor Juan Pablo Zorrila clearly explains the concept of the Tobin Tax.
