Financial transaction tax and financial market stability with diverse beliefs

Jörg Rieger

This papers studies the impact of a ﬁnancial transactions tax on the trading volume and asset price volatility in a model with heterogeneous beliefs. To model heterogeneous beliefs we follow Kurz (1994, 1997) and restrict the class of beliefs to the subset of rational beliefs. We study a tax on bond and asset purchases. The simulated model shows that the introduction of a transaction tax results in a lower trading volume and therefore in less liquid ﬁnancial markets. Because of the decreased liquidity the volatility of the stock market increases. We also study the welfare effects of a ﬁnancial transaction tax and the simulation results also show that there is only a small change in welfare.

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Year of publication:	April 2014
Authors:	Rieger, Jörg
Publisher:	Heidelberg : Univ., Dep. of Economics Heidelberg : Universitätsbibliothek der Universität Heidelberg
Subject:	Transaction Tax \| Financial Regulation \| Heterogeneous Beliefs \| Finanztransaktionssteuer \| Financial transactions tax \| Finanzmarkt \| Financial market \| Theorie \| Theory \| Tobinsteuer \| Tobin tax \| Internationaler Finanzmarkt \| International financial market \| Finanzmarktregulierung \| Financial market regulation \| Regulierung \| Regulation