Should Speculators Be Taxed?

James Dow and Rohit Rahi ()

The Journal of Business, 2000, vol. 73, issue 1, 89-107

Abstract: A number of economists have supported the taxation of speculation in financial markets. We examine the welfare economics of such a tax in a model of a financial market where some agents have superior information and others have a hedging motive. We show that a tax on speculators may actually increase speculative profits. This occurs if the speculators' benefit from less-informative prices offsets the cost of the tax. The effect on the welfare of other agents depends on how information revelation changes risk-sharing opportunities. It is possible for the introduction of a tax to cause a Pareto improvement. Copyright 2000 by University of Chicago Press.

Date: 2000
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Related works:
Working Paper: Should Speculators be Taxed? (1998)
Working Paper: Should Speculators be Taxed? (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:73:y:2000:i:1:p:89-107

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