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Tobin Trouble

CAMBRIDGE – European leaders are seriously considering a Tobin tax, which would put a small levy on financial transactions, thereby dampening trading. But will the tax do as much as its proponents hope?

The popularity of the tax (named for the late Nobel laureate economist James Tobin, for whom its aim was to reduce exchange-rate volatility in currency markets) reflects widespread animus directed at the financial sector, but it far exceeds any real benefits that the tax would deliver. Nonetheless, elected officials find a Tobin tax highly appealing, because it could blunt criticism and divert attention from fundamental, but politically paralyzing, problems surrounding economic policy, particularly budgets, debt, and slow growth.