Rieger, Jörg
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Abstract
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.
Document type: | Working paper |
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Series Name: | Discussion Paper Series / University of Heidelberg, Department of Economics |
Volume: | 0563 |
Date Deposited: | 19 May 2014 13:35 |
Date: | April 2014 |
Number of Pages: | 41 |
Faculties / Institutes: | The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics |
DDC-classification: | 330 Economics |
Uncontrolled Keywords: | Transaction Tax, Financial Regulation, Heterogeneous Beliefs |
Series: | Discussion Paper Series / University of Heidelberg, Department of Economics |