Tobin tax and trading volume tightening: a reassessment

Olivier Damette and Stéphane Goutte

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Abstract: This article extends the previous literature on the Tobin tax. We find that very roughly, a doubling in transaction costs would reduce trading volume by 25% to 40% in the Forex. Most importantly, this article is the first contribution to specify the trading volume of the Forex through different (low and high volatility) regimes. Our results show evidence of nonlinear patterns for trading volumes and transaction costs on the Forex. Thus, the Tobin tax would not have a monotonic impact on trading activity across market conditions. The change in elasticity between low and high volatility regimes would be slight but significantly different. We may suggest that the high-variance regime might be the fundamentalist regime and the low-variance regime might be the chartist regime. It is a first step towards understanding which categories of agents would react to the introduction of a tax. Our results seem consistent with Tobin's underlying thinking; since a tax would penalize chartists more than fundamentalists, it could reduce exchange rate volatility.

Keywords: Markov switching; Global financial crisis; Transaction costs; Forex; Trading volume; Tobin tax (search for similar items in EconPapers)
Date: 2015
Note: View the original document on HAL open archive server: https://hal.science/hal-01203841v2
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Published in Applied Economics, 2015, 47 (29), pp.3124-3141. ⟨10.1080/00036846.2015.1011325⟩

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Journal Article: Tobin tax and trading volume tightening: a reassessment (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01203841

DOI: 10.1080/00036846.2015.1011325

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