Some effects of transaction taxes under different microstructures

Paolo Pellizzari and Frank Westerhoff

No 190, Working Papers from Department of Applied Mathematics, Università Ca' Foscari Venezia

Abstract: We show that the effectiveness of transaction taxes depends on the market microstructure. Within our model, heterogeneous 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)
JEL-codes: C63 D44 H20 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2009-09
New Economics Papers: this item is included in nep-mst and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (64)

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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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