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Market microstructure matters when imposing a Tobin tax—Evidence from the lab

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  • Kirchler, Michael
  • Huber, Jürgen
  • Kleinlercher, Daniel
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    Abstract

    Trading in FX markets is dominated by two microstructures: exchanges with market makers and OTC-markets without market makers. Using laboratory experiments we test whether the impact of a Tobin tax is different in these two market microstructures. We find that (i) in markets without market makers an unilaterally imposed Tobin tax (i.e. a tax haven exists) increases volatility. (ii) In contrast, in markets with market makers we observe a decrease in volatility in unilaterally taxed markets. (iii) An encompassing Tobin tax has no impact on volatility in either setting. Efficiency does not vary significantly across tax regimes.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

    Volume (Year): 80 (2011)
    Issue (Month): 3 ()
    Pages: 586-602

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    Handle: RePEc:eee:jeborg:v:80:y:2011:i:3:p:586-602

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    Web page: http://www.elsevier.com/locate/jebo

    Related research

    Keywords: Tobin tax; Market makers; Double-auction; Dealership market; Experiment; Volatility; Market efficiency; Foreign exchange;

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    References

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    Cited by:
    1. Holmén, Martin & Kirchler, Michael & Kleinlercher, Daniel, 2012. "Do Option-like Incentives Induce Overvaluation? Evidence from Experimental Asset Markets," Working Papers in Economics 540, University of Gothenburg, Department of Economics, revised 21 Nov 2012.
    2. Steven Tucker & Charles Noussair & Charles N. Noussair & Steven Tucker, 2013. "Experimental Research On Asset Pricing," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 554-569, 07.
    3. Lendvai, Julia & Raciborski, Rafal & Vogel, Lukas, 2013. "Macroeconomic effects of an equity transaction tax in a general-equilibrium model," Journal of Economic Dynamics and Control, Elsevier, vol. 37(2), pages 466-482.

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