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Market microstructure matters when imposing a Tobin tax—Evidence from the lab

  • Kirchler, Michael
  • Huber, Jürgen
  • Kleinlercher, Daniel
Registered author(s):

    Trading in FX markets is dominated by two microstructures: exchanges with market makers and OTC-markets without market makers. Using laboratory experiments we test whether the impact of a Tobin tax is different in these two market microstructures. We find that (i) in markets without market makers an unilaterally imposed Tobin tax (i.e. a tax haven exists) increases volatility. (ii) In contrast, in markets with market makers we observe a decrease in volatility in unilaterally taxed markets. (iii) An encompassing Tobin tax has no impact on volatility in either setting. Efficiency does not vary significantly across tax regimes.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0167268111001454
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    Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

    Volume (Year): 80 (2011)
    Issue (Month): 3 ()
    Pages: 586-602

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    Handle: RePEc:eee:jeborg:v:80:y:2011:i:3:p:586-602
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