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Global Economists Call For Tobin Tax

Wednesday, February 17, 2010

A group of 350 economists from around the world have put their signatures to a letter which urges the Group of 20 nations to set in place a financial transaction tax, popularly dubbed a 'Tobin tax'.

The economists representing academic institutions from 35 nations including the UK and the US say that a 0.05% would have little impact on the day-to-day workings of international finance while raising as much as USD400bn a year to help alleviate third world poverty and fight climate change.

"This tax is an idea that has come of age," the letter states. "The financial crisis has shown us the dangers of unregulated finance, and the link between the financial sector and society has been broken. It is time to fix this link and for the financial sector to give something back to society."

"This money is urgently needed. The crises of poverty and of climate change require an historic transfer of billions of dollars from the rich world to the poor world, and this tax would offer a clear way to help fund this," the economists write.

The letter goes on to argue that the UK already levies a tax on share transactions (stamp duty) at ten times the proposed rate "without unduly impacting on the competitiveness of the City of London." The City however, has long lobbied the UK government for this somewhat anachronistic levy to be removed, the UK now being the only major global financial centre to apply such a tax.

The economists' campaign is backed by Nobel Prize winning US economist Joseph Stiglitz, a professor at Columbia University who told the London Evening Standard recently that a Tobin tax has many potential advantages for little cost.

“Very little social returns come from short-term trading. It results in extreme volatility and excessive trading. So anything that discourages short-termism is to be encouraged," he told the paper.

The International Money Fund (IMF), as part of a forthcoming report on proposals to recover public money that was used to support banks in the current financial crisis, has mooted the idea of a financial transactions tax as part of a comprehensive consultation which closed earlier this month. Although the IMF's First Deputy Managing Director, John Lipsky, is more in favour of a Tobin tax as an insurance scheme to protect against any future financial crises, it is thought that the Fund will put forward the idea of some form of global financial sector levy at its April meeting.