OECD Dismisses Tobin Tax Calls

by Robert Lee, Tax-News.com, London

17 June 2002

The Organisation for Economic Cooperation and Development (OECD) announced on Thursday that the imposition of an international tax on foreign currency transactions would not be a practical way in which to reduce volatility, echoing the conclusion reached by the European Commission in February of this year.

Many campaigning groups have argued that the imposition of a so-called 'Tobin Tax' (named after the late Nobel Prize winner, James Tobin) on foreign currency transactions would prevent developing economies from being damaged by overly speculative trading.

However, having completed a study on the subject, the results of which will be included in the forthcoming OECD Economic Outlook, the multilateral body admitted that although there is often a link between high volumes traded and high volatility, 'it is far from clear that the former causes the latter'.

In a statement released on Thursday, the OECD explained that:

'Looking at a number of markets where transaction charges have been imposed, the study concluded that the effect on volatility is at best mixed. In some cases, there was no appreciable reduction - in others. volatility actually rose.'

The OECD report also cited concerns about the costs and practicalities with regard to the implementation of such a tax, arguing that unless imposed on a worldwide basis, it would be unlikely to be effective.

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