Lessons from the Crisis:

Tax to Check Volatile Capital Flows:

One of  the major lessons for developing countries in  the context of  the crisis  is to exercise caution in opening capital accounts  and short-term capital  inflows.

One of the remedial measures for checking volatile capital flows is suggested to be in  the form of a tax on international capital  transactions, widely known as the 'Tobin Tax'.  

Interest in  the potential  for taxing  international capital  flow  stems  fiom concern that exchange rates under floating regimes are too volatile, and that exchange rate target zones are too vulnerable to real  shocks or inconsistent macroeconomic policies. A contributing  factor  in both cases  is the  rapid development of capital mobility in the  last decade, deriving  fiom capital markets liberalisation and  technological innovation. The crisis-situations in several parts of  the world  including the Asian region have given  further impetus  to this idea.