Taxing financial transactions in fundamentally heterogeneous markets

Edoardo Gaffeo and Massimo Molinari

Economic Modelling, 2017, vol. 64, issue C, 322-333

Abstract: The recent global financial crisis has revived a long-standing debate on the desirability and feasibility of taxing financial activities to curb speculation and promote price stability. In this paper we apply agent-based computational techniques to explore this issue in a multi-market environment in which the processes driving the fundamental value of the securities traded in different jurisdictions are heterogeneous. A natural exemplification is to assume that security dealers have the opportunity to submit orders by choosing among stock markets at different stages of development. We argue that the proper policy objective to be pursued is not volatility in itself but price efficiency, that is, the volatility in excess of the discounted stream of subsequent dividends. In this case, a global coordination of tax rates is incentive-compatible, given that it minimizes the distortion associated with speculative trading, on the one hand, and it ensures that the loss of trading volume is lower if compared to the case of unilateral taxation on the other. Notwithstanding a fundamental heterogeneity of the markets involved, the optimal tax rate turns out to be symmetric provided that fundamental value trajectories are positively correlated.

Keywords: Agent-based models; Financial transaction tax; Heterogeneous traders (search for similar items in EconPapers)
JEL-codes: C63 D53 G18 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Taxing financial transactions in fundamentally heterogeneous markets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:64:y:2017:i:c:p:322-333

DOI: 10.1016/j.econmod.2017.04.003

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