Tobin tax and market depth

DOI10.1080/14697680500041064MaRDI QIDQ5697328zbMATH OpenOpenAlexFDO

Authors

Publication date 17 October 2005

Published in Quantitative Finance (Search for Journal in Brave)

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

Mathematics Subject Classification ID

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

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.

Recommendations

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• Capital Market Equilibrium with Differential Taxation *
• Nonlinear taxation, tax-arbitrage and equilibrium asset prices

Cites work

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

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 effectiveness of Keynes-Tobin transaction taxes when heterogeneous agents can trade in different markets: a behavioral finance approach
• THE WORKING OF CIRCUIT BREAKERS WITHIN PERCOLATION MODELS FOR FINANCIAL MARKETS
• A limit order book model for latency arbitrage
• Effect of Tobin tax on trading decisions in an experimental minority game

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