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
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Bibliographic InfoPaper provided by Financial Markets Group in its series FMG Discussion Papers with number dp291.
Date of creation: Apr 1998
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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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