The following are the main merits of the Tobin tax in restricting the adverse effects of hot money flows.
1. It discourages the inflow of hot money or short term speculative capital because of the tax burden.
2. The government and the central bank get a gestation time to get the required adjustment to counter the destabilizing effects of both outflows and inflows.
3. The time taken to pay taxes slows the process of entry and exit of capital.
4. The revenue obtained from capital tax or Tobin can be used for social development purposes.
Countries that have introduced Tobin tax are using it to finance social expenditure. In India, the RBI’s stand on Tobin tax is that we may impose it if circumstances warrant it.
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