Editing Tobin tax (section)

====Tobin tax proponents response to empirical evidence on volatility====
Lack of ''direct'' supporting evidence for stabilizing (volatility-reducing) properties of Tobin-style transaction taxes in [[econometric]] research is acknowledged by some of the Tobin tax supporters:

{{blockquote|Ten studies report a positive relationship between transaction taxes and short-term price volatility, five studies did not find any significant relationship. (Schulmeister et al, 2008, p. 18).<ref name="Schulmeister">{{cite web|first1=Stephan|last1=Schulmeister|first2=Margit|last2=Schratzenstaller|first3=Oliver|last3=Picek|year=2008|title=A General Financial Transaction Tax. Motives, Revenues, Feasibility and Effects|work=Research Study by the Austrian Institute of Economic Research, co-financed by Federal Ministry of Finance and Federal Ministry of Economics and Labour|url=http://www.wifo.ac.at/wwa/servlet/wwa.upload.DownloadServlet/bdoc/S_2008_FINANCIAL_TRANSACTION_TAX_31819$.PDF|url-status=dead|archive-url=https://web.archive.org/web/20110706085944/http://www.wifo.ac.at/wwa/servlet/wwa.upload.DownloadServlet/bdoc/S_2008_FINANCIAL_TRANSACTION_TAX_31819$.PDF|archive-date=2011-07-06}}</ref>}}

These Tobin tax proponents propose on ''indirect'' evidence in their favor, reinterpreting studies which do not deal directly with volatility, but instead with trading volume (with volume being generally reduced by transaction taxes, though it constitutes their tax base, see: [[negative feedback]] loop). This allows these Tobin tax proponents to state that "some studies show (implicitly) that higher transaction costs might dampen price volatility. This is so because these studies report that a reduction of trading activities is associated with lower price volatility." So if a study finds that reducing trading volume or trading frequency reduces volatility, these Tobin tax supporters combine it with the observation that Tobin-style taxes are volume-reducing, and thus should also indirectly reduce volatility ("this finding implies a negative relationship between [..] transaction tax [..] and volatility, because higher transaction costs will 'ceteris paribus' always dampen trading activities)." (Schulmeister et al., 2008, p.&nbsp;18).<ref name="Schulmeister"/>

Some Tobin tax supporters argue that volatility is better defined as a "long-term overshooting of speculative prices"<ref>{{cite journal|last=Tobin|first=James|year=1978|title=A Proposal for International Monetary Reform. Cowles Foundation Discussion Papers 506, Cowles Foundation, Yale University|journal=Cowles Foundation Discussion Papers |url=https://ideas.repec.org/p/cwl/cwldpp/506.html|pages=158–159|access-date=2015-03-21|archive-url=https://web.archive.org/web/20150402090427/https://ideas.repec.org/p/cwl/cwldpp/506.html|archive-date=2015-04-02|url-status=live}}</ref><ref>{{cite journal|last1=Eichengreen|first1=Barry|last2=Tobin|first2=James|last3=Wyplosz|first3=Charles|year=1995|title=Two Cases for Sand in the Wheels of International Finance|journal=Economic Journal|volume=105|issue=428|pages=162–72|doi=10.2307/2235326|jstor=2235326|s2cid=154501203}}</ref> than by standard statistical definitions (e.g., [[conditional variance]] of returns<ref>{{cite journal|last=Engle|first=Robert F.|year=1982|title=Autoregressive Conditional Heteroscedasticity with Estimates of Variance of United Kingdom Inflation|journal=Econometrica|volume=50|issue=4|pages=987–1008|doi=10.2307/1912773|jstor=1912773}}</ref>)  ) which are typically used in empirical studies of volatility.

The lack of empirical evidence to support or clearly refute the Tobin tax proponents' claim it will reduce "excess" volatility is due in part to a lack of an agreed definition of "excess" volatility that allows to be distinguished and formally measured.<ref name="Schulmeister"/>