Tobin Tax

noun (proper noun + common noun; treated as noun phrase)

/ˈtɒbɪn tæks/

A proposed small percentage levy on cross-border currency transactions, originally suggested by Nobel laureate economist James Tobin in 1972 to dampen short-term speculative capital flows without impeding long-term investment. Tobin proposed a rate of 0.1–0.5% on each currency conversion. Though never implemented in its original form, it inspired the EU Financial Transaction Tax debate and India's Securities Transaction Tax (STT, introduced 2004) is sometimes considered a domestic variant applied to equity trades.

✍️ Usage in a UPSC answer

India's Securities Transaction Tax, levied at 0.1% on equity delivery trades and raised to 0.02% on futures and 0.1% on options (Union Budget 2024-25) in response to explosive F&O speculation, operationalises the Tobin Tax philosophy domestically — throwing sand in the wheels of hyper-speculative derivatives trading.

Synonyms

financial transaction taxcurrency transaction levysecurities transaction taxcapital flows tax

Antonyms

free capital movementzero-tariff capital flowscapital account liberalisation

🌱 Word Family

financial transaction tax (related phrase), Securities Transaction Tax (Indian analogue), currency transaction tax (synonym), Robin Hood Tax (popular synonym)

🔡 Root

Proper noun: named after James Tobin (1918–2002), Nobel Prize in Economics 1981; 'tax' from Medieval Latin taxare = to estimate, assess

📜 Etymology

James Tobin first proposed the currency transaction tax in his 1972 Janeway Lectures at Princeton, formalised in a 1978 paper. His motivation was to 'throw sand in the wheels' of destabilising currency speculation following the breakdown of the Bretton Woods fixed exchange-rate system. The idea gained renewed prominence during the 1997 Asian financial crisis and the 2008 global financial crisis, advocated by NGOs under the 'Robin Hood Tax' campaign. The EU's Financial Transaction Tax proposal (2011 onwards) drew directly on Tobin's framework.

🧠 Memory Hook

TOBIN TAX: named after economist TOBIN who wanted to THROW SAND in the wheels of speculative currency trades. Remember 'sand in the wheels' — small enough not to stop legitimate trade, large enough to make millisecond speculation unprofitable. India's STT is domestic Tobin Tax sand.

💰 Indian Economy 📖 Seen in: Indian Economy — Growth, Planning & De... 📋 Also in Key Terms

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