Effects of short-term foreign capital movements on the economies of the country and the applicability of tobin tax in Turkey

The globalization movements that started after the Second World War, with the collapse of the Bretton Woods monetary system and the end of the Cold War period in the early 1970s. has influenced the entire World by increasing its popularity. The liberalization of capital movements as a result of globalization paved the way for short-term capital movements. It has brought about significant changes in the structure and volume of global capital movements. As a result of the information and communication technologies developed parallel to this situation, the capital, which has become increasingly speculative, has started to move easily among countries. The economies of the countries whose economies are not structurally ready for this new conjuncture have been adversely affected by the momentary inflows of speculative capital and led to crises. In fact, the main actor of the economic crises which was taking place on the stage in 1994 Mexico, 1997 Asia, 1998 Rusia, 1999 Brazilia, 2001 Argentina as short-term capital movements. In the literature, there has some suggestions called capital controls in order to eliminate the negative effects caused by such capital movements. One of these proposals is the tax introduced by Nobel laureate American Economist James Tobin, known as Tobin tax in the literature. This tax is based on the principle of obtaining a low rate tax on all spot foreign exchange transactions in the world. On the other hand with the economic liberalization process starting has started in the 1980s and Decree No. 32 of 1989 in Turkey, capital movements have become completely free. As a result of this decision, considerable amounts of short-term capital inflows and outflows had been to Turkey. Short-term capital flows to Turkey have played an important role in experiencing the crises in April 1994, November 2000 and February 2001. In this study it is covered that along with short term capital movements, the theorical framework of Tobin tax that is one of the first suggestions that comes to mind about slowing down the short term capital movements and applicability of this tax in Turkey. Key Words: Short Term Capital Movements, Financial Crisis , Capital Controls, Tobin Tax