Some effects of transaction taxes under different microstructures

Paolo Pellizzari , Frank Westerhoff

We show that the effectiveness of transaction taxes depends on the market microstructure. Within our model, hetero-geneous 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.

Mots clés: Transaction tax; Tobin tax; microstructures; agent-based models; Liquidity

Domaines: Économie et finance quantitative [q-fin]

Paolo Pellizzari, Frank Westerhoff. Some effects of transaction taxes under different microstructures. Journal of Economic Behavior and Organization, 2009, 72 (3), pp.850. ⟨10.1016/j.jebo.2009.08.010⟩. ⟨hal-00727590⟩