On the non-homogeneous effect of financial transaction taxes

• Patrick Thöni ^[1]
  1. [1] University of Copenhagen

     University of Copenhagen

     Dinamarca

     
• Localización: Economics and Business Letters, ISSN-e 2254-4380, Vol. 9, Nº. Extra 3, 2020 (Ejemplar dedicado a: Selected papers from 7th International PhD Meeting in Economics 2019), págs. 230-239
• Idioma: inglés
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• Resumen

  • This paper investigates the impact of a financial transaction tax (FTT) in a classic financial market setting. The benchmark analysis is based on an extension of the model presented in Kyle (1985). Opposed to the existing literature, I am able to find equilibrium values with a linear tax. Results of the benchmark model confirm standard findings of FTT’s, such as an increased bid-ask spread and an overall less deep market. Importantly, I find that the introduction of a tax leads to a non-linear pricing function. In turn, the model predicts a decrease in market depth and trading aggressiveness for small trades, whereas for larger trades the introduction of a FTT only leads to increased spreads and prices.