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

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

Abstract

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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  • 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.
    • Handle: RePEc:eee:jeborg:v:74:y:2010:i:1-2:p:58-71
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    More about this item

    Keywords

    Tobin tax Experiment Foreign exchange Market efficiency Trading volume Volatility;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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