Robin Hood Tax

Flash Boys

The Robin Hood tax commonly refers to a package of financial transaction taxes (FTT) proposed by a campaigning group of civil society non-governmental organizations (NGOs). Campaigners have suggested the tax could be implemented globally, regionally or unilaterally by individual nations.

Conceptually similar to the Tobin tax (a small tax on spot currency conversions), it would affect a wider range of asset classes including the purchase and sale of stocks, bonds, commodities, unit trusts, mutual funds, and derivatives such as futures and options. The Tobin tax was proposed for foreign currency exchange only.

A United Kingdom-based global campaign for the Robin Hood tax was launched on 10 February 2010 and is being run by a coalition of over 50 charities and organizations, including Christian Aid, Comic Relief and UNICEF. The Robin Hood tax campaign also supports both a Bank levy and a Financial Activity Tax, saying they are agnostic about the chosen mechanism providing it involves a sizeable transfer of wealth from the financial sector to the needy. However most of their campaigning efforts have focussed on the FTT variant.

The campaign has proposed to set taxes on a range of financial transactions – the rate would vary but would average at about 0.05%. The Robin Hood tax has been supported by some 350 economists in a letter written to the G20, including Joseph Stiglitz and Jeffery Sachs. Politicians supporting the tax include Angela Merkel and Katsuya Okada, Japan’s foreign minister.

The term ‘Tobin tax’ is often used as a synonym for the Robin Hood tax. The Robin Hood FTT variant is similar to the original Tobin tax proposal but would apply to a broader set of financial sector transactions. Another difference between the Robin Hood FTT and the Tobin tax is that the Tobin tax was intended primarily to stabilize the economic market rather than generate revenue. Economists and analysts are now divided as to whether a small transaction tax would have a significant braking effect on the velocity of trades.

Critics argue that he proposed FTT could reduce the total volume traded in financial products, with negative consequences for employment. While this may reduce employment in brokerages and other areas of the securities industry, a further consequence could be unemployment outside of the financial sector. Other unintended consequences of an FTT could include a reduction in professional market participants such as market makers who stand ready to buy or sell at prevailing prices. This could impact the orderly and efficient operation of markets, including the price discovery process. It has been suggested that such reforms could lead to reduced liquidity, wider bid / offer spreads, and greater volatility.

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