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A Tobin tax only on sellers

Author

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  • Chen, Haiwei
Abstract
A market trading model shows that a Tobin tax affects the portfolio weight of the risky asset and thus the portfolio risk. As risk changes, the demand under a Tobin tax becomes more elastic for buyers and sellers but more inelastic for short sellers. Imposing a Tobin tax lowers market volatility for trading that does not involve a short seller. In addition, it is shown that imposing the tax solely on the seller, in comparison with splitting the tax equally between the buyer and the seller, further reduces market volatility. Simulation results confirm these predictions of the model.

Suggested Citation

  • Chen, Haiwei, 2016. "A Tobin tax only on sellers," Finance Research Letters, Elsevier, vol. 19(C), pages 83-89.
    • Handle: RePEc:eee:finlet:v:19:y:2016:i:c:p:83-89
    DOI: 10.1016/j.frl.2016.06.007
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    References listed on IDEAS

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    1. Kang Shi & Juanyi Xu, 2009. "Entry cost, the Tobin tax, and noise trading in the foreign exchange market," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(4), pages 1501-1526, November.
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    Cited by:

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    2. Haiwei Chen, 2017. "Real Estate Transfer Taxes and Housing Price Volatility in the United States," International Real Estate Review, Global Social Science Institute, vol. 20(2), pages 207-219.
    3. Gaffeo, Edoardo, 2019. "Leverage and evolving heterogeneous beliefs in a simple agent-based financial market," Finance Research Letters, Elsevier, vol. 29(C), pages 272-279.

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    More about this item

    Keywords

    Tobin taxes; Portfolio weights; Risk; Demand; Volatility; A seller-tax;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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