financeJames Tobin originally proposed a tax on currency transactions as a way to dampen volatility. Scheinkman and Xiong (2003) show that, while speculation may be reduced, volatility is not much affected by a Tobin tax. A principal example of this in recent times is housing prices, which are still quite volatile despite the hefty transaction “taxes” imposed by real estate agents.
More recently, the Tobin tax has been proposed by the EU as a way to raise revenue from the financial sector. What economic models could help us understand the possible consequences of such a policy, particularly if implemented in isolation by the EU rather than worldwide as originally envisaged by Tobin?
People on Econ SE aren't really in a position to answer this kind of question. On a topic of such complexity, big studies are required (such as the one by the EC in 2002, page 42) to crunch the numbers.
The basic concern for those in European financial services is one of competitiveness, and the mechanism is very straightforward. If a 0.2% tax were imposed on currency speculation, a trader who shifted a pot of money daily would incur an annual tax rate of about 50%. Weekly, 10%. Monthly, 2.4% (Source: Sloman 2009).
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