What is it?

A Tobin tax is a tax imposed on cross-border currency trading. It was proposed in the early 1970s by James Tobin, an economist, but has never been implemented on a large scale. The aim of the tax would be to discourage dangerous speculation in currencies, but another attraction is that even a low-level tax (1% or 0.1% of the value of trades) could raise billions of dollars, which could then be used for ‘good causes’. For this reason, it has been supported by many charities and the global justice movement. Arguments against the tax include the problem that it would need to be created and managed internationally, that it would be difficult to implement, and that it would distort the market in dangerous ways.

Why is it in the news?

UK Prime Minister Gordon Brown recently brought up the idea of a tax on international financial transactions (a version of the Tobin tax) at a meeting of G20 finance ministers. He stressed that this was one of several possible options that should be discussed, and not necessarily the best option. The tax would provide a fund to pay for future bail-outs and would also be expected to discourage speculative trading. The suggestion received mixed reactions, including negative responses from the US, Canada and the IMF.

How can I use it in class?

Reading: Students read one of the articles below as homework to find arguments in favour of and against the implementation of a Tobin tax. With smaller classes, you could focus only on the two articles marked (*): the Guardian article is written by a long-term supporter of Tobin taxes; the Economist article lists strong arguments against such a tax.

Debate: What are the advantages and disadvantages of a Tobin tax? Do you think there will ever be the necessary global consensus to implement such a tax? What are the practical obstacles to its implementation?

• Lukewarm reaction to UK tax plan, BBC, 7 November

• Gordon Brown backs radical plan to transform global banking system (*), Guardian, 7 November

• Brown snubbed over bank bailout tax, This is Money, 8 November

• Alistair Darling backs Brown's Tobin tax despite cold shoulder from US, Guardian, 8 November

• UK Brown Wants Financial Transactions Tax Explored Further, Wall Street Journal, 9 November

• The wrong tool for the job (*), Economist, September

• Tobin tax, Wikipedia article