Should Speculators Be Taxed?
London Business School - Institute of Finance and Accounting
London School of Economics - Department of Finance; London School of Economics & Political Science (LSE) - Financial Markets Group
May 13, 1997
A number of economists have supported the taxation of speculation in financial markets. We examine the welfare economics of such a tax in a model of trading in a nancial market where some agents have superior information. We show that in some cases a tax on speculators may actually increase speculative profits. This occurs if the speculators' benefit from less informative prices offsets the costs of the tax. The effect on the welfare of other agents depends on how revelation of information changes risk-sharing opportunities in the market. It is possible for the introduction of a tax to cause a Pareto improvement.
Number of Pages in PDF File: 18
JEL Classification: D60, D82, G14, G18working papers series
Date posted: October 12, 2007
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