Tobin tax “could drive away investors”

A TOBIN TAX on financial transactions would drive away business investors, a leading European think-tank has said.

The EDHEC-Risk Institute warned European internal market and services commissioner Michel Barnier that plans to fund the future European budget through a tax on financial transactions would be inadvisable.

In an open letter, it said that while the Tobin tax “reduces speculative activity in financial markets”, it also “drives away investors who provide liquidity, stabilise prices and help in the price discovery process”.

The think-tank also said the tax “either fails to reduce return volatility or leads to an increase in volatility”. It would also lead to problems in differentiating between transactions that are purely speculative and those of rational investors.

“From the point of view of speculators, unless every country in the world introduced the Tobin tax, it would be easy to circumvent the tax by routing transactions through countries that do not impose the tax,” the letter added.

Recent reports have suggested that the European Union will push ahead with its plans to introduce the tax, named after the American economist James Tobin who devised it.

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