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 trading in a financial market where some agents have superior information. We show that in some cases a tax on speculators may actually increase speculative profits. This occurs if the speculators benefit from less informative prices offsets the costs of the tax. The effect on the welfare of other agents depends on how revelation of information changes risk-sharing opportunities in the market. It is possible for the introduction of a tax to cause a Pareto improvement.KeyWords: Speculation, Hedging, Transactions Tax, Information Revelation
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Financial Markets Group in its series FMG Discussion Papers with number dp291.
Date of creation: Apr 1998
Date of revision:
Contact details of provider:
Web page: http://www.lse.ac.uk/fmg/
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
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Foucault, Thierry & Themar, David & Sraer, David, 2008.
"Individual investors and volatility,"
Les Cahiers de Recherche
899, HEC Paris.
- Cespa, Giovanni, 2002.
"Short-term investment and equilibrium multiplicity,"
European Economic Review,
Elsevier, vol. 46(9), pages 1645-1670, October.
- Giovanni Cespa, 2000. "Short-term investment and equilibrium multiplicity," Economics Working Papers 520, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2002.
- CITANNA, Alessandro & POLEMARCHAKIS, Herakles M. & TIRELLI, Mario, 2001.
"The taxation of trades in assets,"
CORE Discussion Papers
2001017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Hara, Chiaki, 2012. "Asset prices, trading volumes, and investor welfare in markets with transaction costs," CIS Discussion paper series 556, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
- JÃ¼rgen Antony & Michiel Bijlsma & Adam Elbourne & Marcel Lever & Gijsbert Zwart, 2012. "Financial transaction tax: review and assessment," CPB Discussion Paper 202, CPB Netherlands Bureau for Economic Policy Analysis.
- James Dow & Gary Gorton, 2006. "Noise Traders," NBER Working Papers 12256, National Bureau of Economic Research, Inc.
- Kirchler, Michael & Huber, Jürgen & Kleinlercher, Daniel, 2011. "Market microstructure matters when imposing a Tobin tax—Evidence from the lab," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 586-602.
- Chiaki Hara, 2013. "Asset Prices, Trading Volumes, and Investor Welfare in Markets with Transaction Costs," KIER Working Papers 862, Kyoto University, Institute of Economic Research.
- Dominique Dupont & Gabriel Lee, 2007.
"Effects of Securities Transaction Taxes on Depth and Bid-Ask Spread,"
Springer, vol. 31(2), pages 393-400, May.
- Dupont, Dominique Y. & Lee, Gabriel S., 2003. "Effects of Securities Transaction Taxes on Depth and Bid-Ask Spread," Economics Series 132, Institute for Advanced Studies.
- Alexander Gümbel, 2005. "Should short-term speculators be taxed, or subsidised?," Annals of Finance, Springer, vol. 1(3), pages 327-348, 08.
- Michael Hanke & J?rgen Huber & Michael Kirchler & Matthias Sutter, 2007.
"The economic consequences of a Tobin tax - An experimental analysis,"
2007-18, Faculty of Economics and Statistics, University of Innsbruck.
- Hanke, Michael & Huber, Jürgen & Kirchler, Michael & Sutter, Matthias, 2010. "The economic consequences of a Tobin tax--An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 74(1-2), pages 58-71, May.
- Dimitri Vayanos & Jiang Wang, 2012.
"Liquidity and Asset Returns under Asymmetric Information and Imperfect Competition,"
FMG Discussion Papers
dp708, Financial Markets Group.
- Dimitri Vayanos & Jiang Wang, 2012. "Liquidity and Asset Returns Under Asymmetric Information and Imperfect Competition," Review of Financial Studies, Society for Financial Studies, vol. 25(5), pages 1339-1365.
- Huber, Jürgen & Kleinlercher, Daniel & Kirchler, Michael, 2012. "The impact of a financial transaction tax on stylized facts of price returns—Evidence from the lab," Journal of Economic Dynamics and Control, Elsevier, vol. 36(8), pages 1248-1266.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (The FMG Administration).
If references are entirely missing, you can add them using this form.