Some effects of transaction taxes under different microstructures
AbstractWe show that the effectiveness of transaction taxes depends on the market microstructure. Within our model, heterogeneous traders use a blend of technical and fundamental trading strategies to determine their orders. In addition, they may become inactive if the profitability of trading decreases. We find that in a continuous double auction market the imposition of a transaction tax is not likely to stabilize financial markets since a reduction in market liquidity amplifies the average price impact of a given order. In a dealership market, however, abundant liquidity is provided by specialists, and thus a transaction tax may reduce volatility by crowding out speculative orders.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Behavior & Organization.
Volume (Year): 72 (2009)
Issue (Month): 3 (December)
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Transaction tax Tobin tax Microstructures Agent-based models Liquidity;
Other versions of this item:
- Paolo Pellizzari & Frank Westerhoff, 2009. "Some effects of transaction taxes under different microstructures," Working Papers 190, Department of Applied Mathematics, Università Ca' Foscari Venezia.
- Paolo Pelizzari & Frank Westerhoff, 2007. "Some Effects of Transaction Taxes Under Different Microstructures," Research Paper Series 212, Quantitative Finance Research Centre, University of Technology, Sydney.
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
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