Asset trade, Real investment and a tilting Financial transaction tax

66 Pages Posted: 2 Mar 2016 Last revised: 8 Oct 2020

See all articles by Tobias Dieler

Tobias Dieler

University of Bristol - Department of Finance and Accounting

Swarnava Biswas

University of Bristol

Giacomo Calzolari

European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR); University of Bologna

Fabio Castiglionesi

Tilburg University - Department of Finance

Date Written: June 8, 2020

Abstract

We study the impact of a financial transaction tax (FTT) in a model that combines asset trade and real investment. An informed trader holds private information about the fundamental value of a firm and the firm's manager relies on the asset price to infer such information and invest accordingly. We show that an FTT inefficiently reduces trading in the financial market, however it may tilt the market equilibrium and make asset prices more informative. We characterize when each of these two effects prevails. The model also helps reconciling empirical evidence on the adoption of the FTT.

Keywords: Financial transaction tax, market trading, asset price informativeness, investment

JEL Classification: G12, G14, G18, G31

Suggested Citation

Dieler, Tobias and Biswas, Swarnava and Calzolari, Giacomo and Castiglionesi, Fabio, Asset trade, Real investment and a tilting Financial transaction tax (June 8, 2020). Available at SSRN: https://ssrn.com/abstract=2739357 or http://dx.doi.org/10.2139/ssrn.2739357

Tobias Dieler (Contact Author)

University of Bristol - Department of Finance and Accounting ( email )

Tyndalls Park Road 15-19
Bristol, BS8 1PY
United Kingdom

HOME PAGE: http://sites.google.com/site/tobiasdieler/

Swarnava Biswas

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

Giacomo Calzolari

European University Institute - Economics Department (ECO) ( email )

Villa la Fonte
Via delle fontanelle 18
San Domenico di Fiesole, Florence 50014
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

University of Bologna ( email )

Piazza Scaravilli 2
I-40126 Bologna
Italy

HOME PAGE: http://sites.google.com/view/giacomo-calzolari

Fabio Castiglionesi

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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