Financial transaction taxes and the informational efficiency of financial markets: a structural estimation

Marco Cipriani, Antonio Guarino and Andreas Uthemann

No CWP07/19, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract: We develop a new methodology to estimate the impact of a financial transaction tax (FTT) on informational efficiency, liquidity and volatility. In our sequential trading model there are price elastic noise traders and traders with private information of heterogeneous quality. We estimate the model without a tax and then quantify the effect of an FTT. In our sample, noise traders are price elastic but less so than informed traders. The introduction of an FTT changes the composition of the market, lowering informational efficiency. Even a small, 5 bps, FTT impedes correct price convergence on a sizeable percentage of days.

Keywords: Financial Transaction Tax; Market Microstructure; Structural Estimation (search for similar items in EconPapers)
Date: 2019-02-06
New Economics Papers: this item is included in nep-mst
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Related works:
Journal Article: Financial transaction taxes and the informational efficiency of financial markets: A structural estimation (2022)
Working Paper: Financial Transaction Taxes and the Informational Efficiency of Financial Markets: A Structural Estimation (2022)
Working Paper: Financial transaction taxes and the informational efficiency of financial markets: a structural estimation (2022)
Working Paper: Financial Transaction Taxes and the Informational Efficiency of Financial Markets: A Structural Estimation (2021)
Working Paper: Financial transaction taxes and the informational efficiency of financial markets: a structural estimation (2019)
Working Paper: Financial Transaction Taxes anf the Informational Efficiency of Financial Markets: A Structural Estimation (2015)
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