Tuesday, November 10, 2009

Tobin tax disturbs the purchasing power parity condition!

British prime minister Gordon Brown is proposing to put such a notorious economic policy into practice. This economic policy is "Tobin tax" which is levied on trade of currency across borders. This aim is to avoid an excess flow of international financial transactions which have caused the current financial crisis. He seems to be highly sceptical about liberal international system as he suspects the liberalised system has a high risk to encourage a bubble burst of financial market. However, Tobin tax also involves the high risk of disturbing the purchasing power parity (PPP) condition.