TY  - JOUR
AU  - Frankel,Jeffrey A.
TI  - How Well do Foreign Exchange Markets Function: Might a Tobin Tax Help?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5422
PY  - 1996
Y2  - January 1996
UR  - http://www.nber.org/papers/w5422
L1  - http://www.nber.org/papers/w5422.pdf
N1  - Author contact info:
Jeffrey A. Frankel
Kennedy School of Government
Harvard University
79 JFK Street
Cambridge, MA 02138
Tel: 617/496-3834
Fax: 617/496-5747
E-Mail: jeffrey_frankel@harvard.edu
AB  - Figures for 1995 estimate trading by dealers in the foreign exchange market at over $1,200 billion per day, most of it with other dealers.  Some have linked this volume to concerns of excessive volatility in the market.  Tobin's proposal to address this volatility with a small tax on all foreign exchange transactions has not received the serious attention it deserves.  The paper argues that a better case can be made for the proposition that the tax might dampen exchange rate volatility than most economists believe.  Calculations show that the tax, unlike some forms of capital control, would fall far more heavily on short-term transactions than long-term.  Survey data and a simple model suggest, in turn, that short-term activity can be destabilizing.  The paper also offers crude estimates of the revenue that would be raised from the Tobin tax.  It is left to other authors to examine a major shortcoming of the proposal, enforceability.
ER  -