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What is a Tobin tax?

After today's comments by the chairman of the FSA (Financial Services Authority) Lord Turner, many people are now wondering exactly what a Tobin tax is. Named after the economist James Tobin this particular style of tax was first discussed in 1971 in relation to implementing a tax charge on all cross-border currency transactions in order to reduce short-term speculation by increasing short-term costs for traders.

The idea was to raise significant tax income and use these proceeds for the good of the population in whichever country the tax was introduced. If the UK authorities were to go ahead with a Tobin style tax strategy, in relation to financial transactions, it is estimated that it could raise in excess of $50 billion a year. This money would then be allotted to various charities in the UK and as you may have guessed there has been much support for Lord Turner's statement from the charity sector.

Even though the idea of a Tobin tax in Europe has been discussed, with Belgium in particular suggesting it would implement such a tax if EU partners were to implement their own equivalent, there are no immediate plans to take this course of action. Is the UK about to break the mould?

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