Currency Transaction Tax Elasticity: an Econometric Estimation

This article endeavours to measure the elasticity of the volume of the currency exchange transactions to a tax on them. The analysis is principally based on cointegration techniques. This paper is the fi rst attempt to estimate the infl uence of a currency transaction tax on the foreign exchange market volume trading. The econometric estimations suggest that the forex trading volume could be signifi cantly reduced by a Tobin tax. Nevertheless, elasticities are heterogeneous with respect to the currency pairs: the largest elasticities are the euro/dollar and sterling/dollar currency pairs that are also the most traded exchange parities. The values of the estimates are lower when the SURE (Seemingly Unrelated Regression Equations) estimator is used than when the panel estimation is implemented.