On the incidence of a financial transactions tax in a model with fire sales
AbstractThis paper studies the impact of a financial transactions tax on a financial market where financial institutions trade with each other. Assets are marked to the market and financial institutions with negative equity are forced out of business. There are two main results: First, if all banks have enough liquidity so that they can honor their short-term obligations, a financial transactions tax is entirely neutral. Second, in a model with correlated investment risk and short-term financing of banks, a financial transactions tax contributes to financial distress and undoes other policy measures that are used to stabilize financial markets.
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 University of Cologne, Department of Economics in its series Working Paper Series in Economics with number 55.
Date of creation: 26 Jun 2012
Date of revision:
Financial transactions tax; financial stability; financial markets; cash-in-the-market-pricing; marking-to-market;
Find related papers by JEL classification:
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ACC-2012-07-08 (Accounting & Auditing)
- NEP-ALL-2012-07-08 (All new papers)
- NEP-PBE-2012-07-08 (Public Economics)
- NEP-PUB-2012-07-08 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rodrigo Cifuentes & Gianluigi Ferrucci & Hyun Song Shin, 2005. "Liquidity risk and contagion," Bank of England working papers 264, Bank of England.
- Allen, Franklin & Carletti, Elena, 2008.
"Mark-to-market accounting and liquidity pricing,"
Journal of Accounting and Economics,
Elsevier, vol. 45(2-3), pages 358-378, August.
- Enrico Perotti & Javier Suarez, 2011.
"A Pigovian Approach to Liquidity Regulation,"
DNB Working Papers
291, Netherlands Central Bank, Research Department.
- Enrico Perotti & Javier Suarez, 2011. "A Pigovian Approach to Liquidity Regulation," Tinbergen Institute Discussion Papers 11-040/2/DSF15, Tinbergen Institute.
- Perotti, Enrico C & Suarez, Javier, 2011. "A Pigovian Approach to Liquidity Regulation," CEPR Discussion Papers 8271, C.E.P.R. Discussion Papers.
- Allen, Franklin & Gale, Douglas, 1994.
"Limited Market Participation and Volatility of Asset Prices,"
American Economic Review,
American Economic Association, vol. 84(4), pages 933-55, September.
- Allen, F. & Gale, D., 1991. "Limited Market Participation and Volatility of Asset Prices," Weiss Center Working Papers 2-92, Wharton School - Weiss Center for International Financial Research.
- Gale, D. & Allen, F., 1991. "Limited Market Participation and Volatility of Asset Prices," Weiss Center Working Papers 14-91, Wharton School - Weiss Center for International Financial Research.
- James Tobin, 1978.
"A Proposal for International Monetary Reform,"
Cowles Foundation Discussion Papers
506, Cowles Foundation for Research in Economics, Yale University.
- Rodrigo Cifuentes & Hyun Song Shin & Gianluigi Ferrucci, 2005. "Liquidity Risk and Contagion," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 556-566, 04/05.
- Harry Huizinga, 2002. "A European VAT on financial services?," Economic Policy, CEPR & CES & MSH, vol. 17(35), pages 497-534, October.
- Michael Keen, 2011. "The Taxation and Regulation of Banks," IMF Working Papers 11/206, International Monetary Fund.
- Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Werner).
If references are entirely missing, you can add them using this form.