Tobin has suggested that exchange rate volatility be controlled through a tax on international financial transactions. This analysis shows that the Tobin tax as a pure transaction tax is not viable. The tax would impair financial operations and create international liquidity problems. It is also unlikely to deter speculation. However, a possible alternative would be a two-tier rate structure—consisting of a low-rate transaction tax plus an exchange surcharge. The exchange rate could move freely within a “crawling” exchange rate band, but overshooting the band would trigger a tax on an “externality,” which is the discrepancy between the market exchange rate and the closest margin of the band. The scheme is inspired by the European Monetary System. However, exchange rates would be kept within the target range through a tax, not through interest policy or central bank sterilization and, eventually, the depletion of international reserves.

Financial transactions taxes have recently gained attention as a possible means to influence the behavior of financial markets and to reduce destabilizing capital flows. One variation is a tax on all foreign currency conversions, often termed a “Tobin tax.” This paper suggests that these taxes would probably not produce the desired effects and would be difficult to design and implement. It is unclear that the possible advantages in reducing some short-term speculative trading would outweigh the possible disadvantages in impairing the efficiency of financial markets. From an administrative perspective, without a broad international consensus and application, these taxes are likely to be easily avoided.

Illicit financial flows constitute a global phenomenon of massive but uncertain scale, which erodes government revenues and drives corruption in countries rich and poor. This book offers a critical examination of existing data and methodologies, identifying the most promising avenues for future improvement.

"The global economic and financial crisis has created important needs for fiscal consolidation. This document analyses potential instruments to raise additional tax revenues from the financial sector. The first section reviews the current policy objectives related to the taxation of the financial sector. The second section sheds some light on the current tax treatment of the financial sector. The third section discusses potential tax instruments to reach the goals. The fourth and fifth section respectively assess the advantages and drawbacks of a Financial Transaction Tax and a Financial Activities Tax."--Editor.

Allegations by political leaders and others that offshore financial centers enable multinational enterprise to avoid paying a “fair” amount of tax -- and that they enable wealthy individuals to evade paying any tax, much of it on ill gotten gains -- are once again garnering headlines and inspiring government action. One of the most prominent commentators on these topics, The Tax Justice Network, has recently claimed that thanks to the services of tax havens $21-$32 trillion of wealth of questionable origin remains hidden and untaxed, and that such abuse must be stopped through greater regulation. In this paper we argue that such claims rest on poor data and analysis, and on mistakes about how financial transactions, international taxation, and anti-money laundering rules actually work. We further argue that demands for more regulation without considering cost and effectiveness rely on a belief that international financial transactions are assumed illegitimate unless tightly controlled, rather than primarily reflecting the normal, legitimate workings of an efficient market.