Can a Financial Transaction Tax Prevent Stock Price Booms?

Klaus Adam, Johannes Beutel, Sebastian Merkel and Albert Marcet

No 840, Working Papers from Barcelona School of Economics

Abstract: We present a stock market model that quantitatively replicates the joint behavior of stock prices, trading volume and investor expectations. Stock prices in the model occasionally display belief-driven boom and bust cycles that delink asset prices from fundamentals and redistribute considerable amounts of wealth from less to more experienced investors. Although gains from trade arise only from subjective belief differences, introducing Â…financial transactions taxes (FTTs) remains undesirable. While FTTs reduce the size and length of boom-bust cycles, they increase the likelihood of such cycles, thereby overall return volatility and wealth redistribution. Contingent FTTs, which are levied only above a certain price threshold, give rise to problems of equilibrium multiplicity and non-existence.

Keywords: asset price booms; financial transactions tax; Tobin tax (search for similar items in EconPapers)
JEL-codes: D84 G12 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-cfn and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://bw.bse.eu/wp-content/uploads/2015/09/840-file.pdf (application/pdf)

Related works:
Journal Article: Can a financial transaction tax prevent stock price booms? (2015)
Working Paper: Can a Financial Transaction Tax Prevent Stock Price Booms? (2015)
Working Paper: Can a financial transaction tax prevent stock price booms? (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:840

Access Statistics for this paper

More papers in Working Papers from Barcelona School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Bruno Guallar ().