Taxing financial transactions in fundamentally heterogeneous markets

Edoardo Gaffeo and Massimo Molinari

No 2016/07, DEM Working Papers from Department of Economics and Management

Abstract: The recent global financial crisis has revived a well-honored debate on the desirability and feasibility of taxing financial activities to curb speculation and promote price stability. In this paper we apply agent-based computational techniques to explore this issue in a multi-market environment in which the processes driving the fundamental value of the securities traded in different jurisdictions are heterogeneous. A natural exemplification is to assume that security dealers have the opportunity of submitting orders by choosing among stock markets at different stages of development. We argue that the proper policy objective to be targeted is not volatility in itself, but that in excess of the discounted stream of subsequent dividends, that is price efficiency. In this case, a global coordination is incentive-compatible, given that it minimizes the distortion associated to speculative trading on the one hand, and it ensures that the loss of trading volume is lower if compared to the case of unilateral taxation on the other one. Notwithstanding a fundamental heterogeneity of the markets involved, the optimal tax rate turns out to be uniform.

Keywords: agent-based models; financial transaction tax; heterogeneous traders (search for similar items in EconPapers)
JEL-codes: C63 D53 G18 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cmp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Taxing financial transactions in fundamentally heterogeneous markets (2017)
Working Paper: Taxing financial transactions in fundamentally heterogeneous markets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:trn:utwprg:2016/07

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