Editing Tobin tax (section)

===Optimum Tobin tax rate===
When James Tobin was interviewed by ''[[Der Spiegel]]'' in 2001, the tax rate he suggested was 0.5%.<ref name="Reiermann"/><ref name="excerpt"/><ref name="Summaries"/> His use of the phrase "let's say" ("sagen wir") indicated that he was not, at that point, in an interview setting, trying to be precise. Others have tried to be more precise or practical in their search for the Tobin tax rate.

According to Garber (1996), competitive pressure on transaction costs ([[Bid–ask spread|spreads]]) in currency markets has reduced these costs to fractions of a [[basis point]]. For example, the EUR.USD [[currency pair]] trades with spreads as tight as 1/10 of a basis point, i.e. with just a 0.00001 difference between the [[Bid–ask spread|bid and offer]] price, so "a tax on transactions in foreign exchange markets imposed unilaterally, 6/1000 of a basis point (or 0.00006%) is a realistic maximum magnitude."<ref>Garber, Peter M. (1996). "Issues of Enforcement and Evasion in a Tax on Foreign Exchange Transactions," in: The Tobin Tax: Coping with Financial Volatility. Mahbub ul Haq, Inge Kaul, and Isabelle Grunberg, eds. (New York, Oxford: [[Oxford University Press]], 1996), p. 135.</ref> Similarly Shvedov (2004) concludes that "even making the unrealistic assumption that the rate of 0.00006% causes no reduction of trading volume, the tax on foreign currency exchange transactions would yield just $4.3 billion a year, despite an annual turnover in dozens of trillion dollars."<ref>Shvedov, Maxim (2004). Transaction Tax: General Overview. CRS Report for Congress, Order Code RL32266, p. 7.</ref>

Accordingly, one of the modern Tobin tax versions, called the [[#The Sterling Stamp Duty|''Sterling Stamp Duty'']], sponsored by certain UK charities, has a rate of 0.005% "in order to avoid market distortions", i.e., 1/100 of what Tobin himself envisaged in 2001. Sterling Stamp Duty supporters argue that this tax rate would not adversely affect currency markets and could still raise large sums of money.<ref name="Spratt" />

The same rate of 0.005% was proposed for a currency transactions tax (CTT) in a report prepared by Rodney Schmidt for The North-South Institute (a [[Canadians|Canadian]] NGO whose "research supports global efforts to [..] improve international financial systems and institutions").<ref>{{cite web|url=http://www.nsi-ins.ca/english/about/default.asp|title=Overview|archive-url=https://web.archive.org/web/20090612010011/http://www.nsi-ins.ca/english/about/default.asp|archive-date=2009-06-12|url-status=dead|access-date=2010-02-27}}</ref> Schmidt (2007) used the observed negative relationship between [[bid–ask spread]]s and transactions volume in foreign exchange markets to estimate the maximum "non-disruptive rate" of a currency transaction tax. A CTT tax rate designed with a pragmatic goal of raising revenue for various development projects, rather than to fulfill Tobin's original goals (of "slowing the flow of capital across borders" and "preventing or managing exchange rate crises"), should avoid altering the existing "fundamental market behavior", and thus, according to Schmidt, must not exceed 0.00005, i.e., the observed levels of currency [[transaction cost]]s (bid-ask spreads).<ref name="Schmidt-10">{{cite web|url=http://www.globalpolicy.org/images/pdfs/10rate.pdf|title=The Currency Transaction Tax: Rate and Revenue Estimates|author=Schmidt, Rodney|date=October 2007|publisher=[[The North-South Institute]]|access-date=9 February 2010|archive-url=https://web.archive.org/web/20090806071843/http://www.globalpolicy.org/images/pdfs/10rate.pdf|archive-date=6 August 2009|url-status=live}}</ref>

The mathematician [[Paul Wilmott]] has pointed out that while perhaps some trading ought to be discouraged, trading for the hedging of derivatives is generally considered a good thing in that it can reduce risk, and this should not be punished. He estimates that any financial tax should be at most one basis point so as to have negligible effect on hedging.<ref name="Wilmott">{{cite web|url=http://www.wilmott.com/blogs/paul/index.cfm/2011/11/11/Taxation-To-Slow-Down-HighFrequency-Speculation-While-Not-Affecting-Hedging-Activity|title=Taxation To Slow Down High-Frequency Speculation While Not Affecting Hedging Activity|author=Paul Wilmott|date=November 2011|archive-url=https://web.archive.org/web/20160421202708/http://www.wilmott.com/blogs/paul/index.cfm/2011/11/11/Taxation-To-Slow-Down-HighFrequency-Speculation-While-Not-Affecting-Hedging-Activity|archive-date=2016-04-21|url-status=dead|access-date=2018-12-09}}</ref>

Assuming that all currency market participants incur the same maximum level of transaction costs (the full cost of the bid-ask spread), as opposed to earning them in their capacity of [[market maker]]s, and assuming that no untaxed substitutes exist for spot currency markets transactions (such as currency [[Futures contract|futures]] and [[Exchange-traded fund#Currency ETFs or ETCs|currency exchange-traded funds]]), Schmidt (2007) finds that a CTT rate of 0.00005 would be nearly volume-neutral, reducing foreign exchange transaction volumes by only 14%. Such volume-neutral CTT tax would raise ''relatively little revenue'' though, estimated at around $33 bn annually, i.e., an order of magnitude less than the "[[carbon tax]] [which] has by far the greatest revenue-raising potential, estimated at $130-750 bn annually." The author warns however that both these market-based revenue estimates "are necessarily [[Speculation|speculative]]", and he has more confidence in the revenue-raising potential of "The [[International Finance Facility]] (IFF) and International Finance Facility for Immunisation (IFFIm)."<ref name="Schmidt-10"/>