Optimal Financial Transaction Taxes / Eduardo Dávila.

Format:

Book

Author/Creator:

Dávila, Eduardo.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27826.

NBER working paper series no. w27826

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

This paper characterizes the optimal transaction tax in an equilibrium model of competitive financial markets. As long as investors hold heterogeneous beliefs that are not related to their fundamental trading motives and the planner calculates welfare using any single belief, a strictly positive tax is optimal, regardless of the magnitude of fundamental trading. Under some conditions, the optimal tax is independent of the belief used by the planner to calculate welfare. The optimal tax can be implemented by adjusting its value until observed total volume equals fundamental volume. Knowledge of i) the share of non-fundamental trading volume and ii) the semi-elasticity of trading volume to tax changes is sufficient to quantify the optimal tax. A calibration of the model consistent with empirically estimated volume semi-elasticities to tax changes and that features a 30% share of non-fundamental trading volume is associated with a 37bps optimal tax.

Notes:

Print version record

September 2020.