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The economic consequences of a Tobin tax--An experimental analysis

  • Hanke, Michael
  • Huber, Jürgen
  • Kirchler, Michael
  • Sutter, Matthias

The effects of a Tobin tax on foreign exchange markets have long been disputed. We present an experiment with currency trading on two markets, where either none, one, or both markets are taxed. Our results confirm the hitherto undisputed issues: a tax reduces trading volume, shifts market share to untaxed markets, and leads to negligible tax revenues if tax havens exist. Concerning the controversial issues we find that (i) volatility effects depend on the existence of tax havens and on market size, (ii) market efficiency decreases in taxed markets when tax havens exist, and (iii) short-term speculation is reduced.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 74 (2010)
Issue (Month): 1-2 (May)
Pages: 58-71

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Handle: RePEc:eee:jeborg:v:74:y:2010:i:1-2:p:58-71
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  2. Stiglitz, J.E., 1989. "Using Tax Policy To Curb Speculative Short-Term Trading," Papers t2, Columbia - Center for Futures Markets.
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  10. Westerhoff, Frank H. & Dieci, Roberto, 2006. "The effectiveness of Keynes-Tobin transaction taxes when heterogeneous agents can trade in different markets: A behavioral finance approach," Journal of Economic Dynamics and Control, Elsevier, vol. 30(2), pages 293-322, February.
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