On the non-homogeneous effect of financial transaction taxes

Authors

  • Patrick Thöni University of Copenhagen

DOI:

https://doi.org/10.17811/ebl.9.3.2020.230-239

Abstract

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 FTTs, 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 an FTT only leads to increased prices and spreads.

Author Biography

Patrick Thöni, University of Copenhagen

Department of Economics

PhD Student

References

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Published

2020-12-13

How to Cite

Thöni, P. (2020). On the non-homogeneous effect of financial transaction taxes. Economics and Business Letters, 9(3), 230-239. https://doi.org/10.17811/ebl.9.3.2020.230-239