Tobin tax – definition

Tobin taxes are named after American Economist James Tobin (1918 – 2002). A Tobin tax is a tax on financial transactions associated with currency exchange. Initially, the purpose of a Tobin tax was to generate stability in currency markets that were suffering considerable turmoil in the wake of the collapse of the Bretton Woods exchange rate system in 1971.

For a Tobin tax to work it would require all countries to implement it and agree on the details, otherwise it would distort the workings of currency markets. A lack of consensus would make a Tobin tax almost impossible to implement.