Institute of Development Studies

Although the motivation for much recent debate on introducing a financial transaction or ‘Tobin’ tax is to generate revenue for public goods – for example through the Robin Hood Tax campaign – James Tobin first proposed his idea for a different reason: to enhance market stability. However new evidence suggests that a Tobin Tax might not actually reduce volatility in markets. A better solution might be an Inductance Tax – a simple mechanism to tax panic rather than every day trade – that promotes stability by dampening crashes and booms, providing policy space for more orderly adjustments in the financial markets.