Tobin tax and market depth

DOI10.1080/14697680500041064zbMATH Open1118.91335arXivcond-mat/0311581OpenAlexW2102798258MaRDI QIDQ5697328FDOQ5697328

Authors:

Publication date: 17 October 2005

Published in: Quantitative Finance (Search for Journal in Brave)

Abstract: This paper investigates - on the basis of the Cont-Bouchaud model - whether a Tobin tax can stabilize foreign exchange markets. Compared to earlier studies, this paper explicitly recognizes that a transaction tax-induced reduction in market depth may increase the price responsiveness of a given order. We find that the imposition of a transaction tax may still achieve a triple dividend: (1) exchange rate fluctuations decrease, (2) currencies are less mispriced, and (3) central authorities raise substantial tax revenues. However, if the price impact function is too sensitive with respect to market depth, stabilization may turn into destabilization.

Full work available at URL: https://arxiv.org/abs/cond-mat/0311581

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Mathematics Subject Classification ID

Macroeconomic theory (monetary models, models of taxation) (91B64)

Cites Work

• VOLATILITY CLUSTERING IN FINANCIAL MARKETS: A MICROSIMULATION OF INTERACTING AGENTS
• Heterogeneous beliefs and routes to chaos in a simple asset pricing model
• HERD BEHAVIOR AND AGGREGATE FLUCTUATIONS IN FINANCIAL MARKETS
• Artificial economic life: A simple model of a stockmarket
• PERCOLATION MODELS OF FINANCIAL MARKET DYNAMICS
• MARKET DEPTH AND PRICE DYNAMICS: A NOTE

Cited In (8)

• Speculation and Tobin taxes: Why sand in the wheels can increase economic efficiency
• Are transaction taxes a cause of financial instability?
• The impact of a financial transaction tax on stylized facts of price returns -- evidence from the lab
• Effects of securities transaction taxes on depth and bid-ask spread
• THE WORKING OF CIRCUIT BREAKERS WITHIN PERCOLATION MODELS FOR FINANCIAL MARKETS
• The effectiveness of Keynes-Tobin transaction taxes when heterogeneous agents can trade in different markets: a behavioral finance approach
• A limit order book model for latency arbitrage
• Effect of Tobin tax on trading decisions in an experimental minority game

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