Should Speculators Be Taxed?
AbstractA number of economists have supported the taxation of speculation in financial markets. We examine the welfare economics of such a tax in a model of a financial market where some agents have superior information and others have a hedging motive. We show that a tax on speculators may actually increase speculative profits. This occurs if the speculators' benefit from less-informative prices offsets the cost of the tax. The effect on the welfare of other agents depends on how information revelation changes risk-sharing opportunities. It is possible for the introduction of a tax to cause a Pareto improvement. Copyright 2000 by University of Chicago Press.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 73 (2000)
Issue (Month): 1 (January)
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Web page: http://www.journals.uchicago.edu/JB/
Other versions of this item:
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D60 - Microeconomics - - Welfare Economics - - - General
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