Should Speculators be Taxed?

James Dow and Rohit Rahi ()

Economics Working Papers from European University Institute

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 trading in a financial market where some agents have superiror information. We show that in some cases a tax on speculators may actually increase speculative profits. This occurs if the speculators' benefit from less informative prices offsets the cocts of the tax. The effect on the welfare of other agents depends on how revelation of information changes risk-sharing opportunities in the market. It is possible for the introduction of a tax to cause a Pareto improvement.

Keywords: INFORMATION; REGULATION; SOCIAL WELFARE (search for similar items in EconPapers)
JEL-codes: D60 D82 G14 G18 (search for similar items in EconPapers)
Pages: 18 pages
Date: 1997
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Related works:
Journal Article: Should Speculators Be Taxed? (2000)
Working Paper: Should Speculators be Taxed? (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco97/21

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