Some effects of transaction taxes under different microstructures

Paolo Pellizzari and Frank Westerhoff

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Abstract: We show that the effectiveness of transaction taxes depends on the market microstructure. Within our model, hetero-geneous traders use a blend of technical and fundamental trading strategies to determine their orders. In addition, they may become inactive if the profitability of trading decreases. We find that in a continuous double auction market the imposition of a transaction tax is not likely to stabilize financial markets since a reduction in market liquidity amplifies the average price impact of a given order. In a dealership market, however, abundant liquidity is provided by specialists, and thus a transaction tax may reduce volatility by crowding out speculative orders.

Keywords: Transaction tax; Tobin tax; microstructures; agent-based models; Liquidity (search for similar items in EconPapers)
Date: 2009-09-04
Note: View the original document on HAL open archive server: https://hal.science/hal-00727590
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Citations: View citations in EconPapers (65)

Published in Journal of Economic Behavior and Organization, 2009, 72 (3), pp.850. ⟨10.1016/j.jebo.2009.08.010⟩

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Related works:
Journal Article: Some effects of transaction taxes under different microstructures (2009)
Working Paper: Some effects of transaction taxes under different microstructures (2009)
Working Paper: Some Effects of Transaction Taxes Under Different Microstructures (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00727590

DOI: 10.1016/j.jebo.2009.08.010

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