The effect of capital taxation on capital flows

In the world of full capital mobility, it is important to restrict capital flows on the base of its global proposals. The Tobin tax has attracted attention not only for global characteristics but also for being much more compatible with financial liberalization reforms. A modest ad valorem tax on all transaction falls most heavily on short round trips while the impact of the tax on long-term investment should be minimal. A transaction tax will not stop speculation during financial crises. However, Tobin tax would discourage short-term transaction in normal times, reduce exchange rate volatility and contribute more stable system in middle and long term. In fact, a Tobin tax is a plausible measure for any individual country even If there is no global move to such scheme. Financial system restructure proposals, that bring agenda after the financial crisis recently experienced, would not by itself be sufficient to prevent financial crises. It could be argued that the volatility of private capital flows needs to be stabilized, and this can be attained by controlling short- term capital inflows through market-based measures such as taxes or reserve requirements.