Market microstructure matters when imposing a Tobin tax—Evidence from the lab
AbstractTrading 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 InfoArticle provided by Elsevier in its journal Journal of Economic Behavior & Organization.
Volume (Year): 80 (2011)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/jebo
Tobin tax; Market makers; Double-auction; Dealership market; Experiment; Volatility; Market efficiency; Foreign exchange;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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