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Transaction Taxes and Financial Market Equilibrium

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Author Info
Subrahmanyam, Avanidhar
Abstract

The author explores the effects of trade-size dependent transaction taxes on market liquidity and information acquisition. Transaction taxes cause strategic informed traders to scale back their aggregate trading, which, surprisingly, causes both market liquidity and informed investor profits to decline in the level of the tax. Taxes on trading can reduce rent-seeking behavior when agents engage in a 'race' to obtain private information earlier than others. Such taxes also generally reduce (increase) the proportion of agents acquiring short-term (long-term) information and thus can lead to greater firm values. Copyright 1998 by University of Chicago Press.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 71 (1998)
Issue (Month): 1 (January)
Pages: 81-118
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Handle: RePEc:ucp:jnlbus:v:71:y:1998:i:1:p:81-118

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  1. Alexander Gümbel, 2000. "Myopic Traders, Efficiency and Taxation," OFRC Working Papers Series 2000fe05, Oxford Financial Research Centre. [Downloadable!]
  2. Foucault, Thierry & Themar, David & Sraer, David, 2008. "Individual investors and volatility," Les Cahiers de Recherche 899, HEC Paris. [Downloadable!]
    Other versions:
  3. Alexander Gümbel, 2005. "Should short-term speculators be taxed, or subsidised?," Annals of Finance, Springer, vol. 1(3), pages 327-348, 08. [Downloadable!] (restricted)
  4. Martins-da-Rocha, V. F. & Vailakis, Yiannis, 2008. "Endogenous Transaction Costs," Economics Working Papers (Ensaios Economicos da EPGE) 680, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
  5. Dominique Dupont & Gabriel Lee, 2007. "Effects of Securities Transaction Taxes on Depth and Bid-Ask Spread," Economic Theory, Springer, vol. 31(2), pages 393-400, May. [Downloadable!] (restricted)
    Other versions:
  6. Edgar L. Feige, 2001. "Taxation for the 21st Century: The Automated Payment Transaction (APT) Tax," Public Economics 0106001, EconWPA. [Downloadable!]
    Other versions:
  7. Robert Pollin & Dean Baker & Marc Schaberg, 2003. "Securities Transaction Taxes for U.S. Financial Markets," Eastern Economic Journal, Eastern Economic Association, vol. 29(4), pages 527-558, Fall. [Downloadable!]
    Other versions:
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