Dynamic and Cross-Platform Optimal Financial Transaction Taxation

70 Pages Posted: 29 Nov 2016

See all articles by Maria Coelho

Maria Coelho

University of California, Berkeley, College of Letters & Science, Department of Economics

Date Written: April 13, 2016

Abstract

This paper analyzes the welfare implications of a linear financial transactions tax in a multi-period portfolio selection model with heterogeneous agents. Under certain conditions over the redistribution of government revenues, with no Pigouvian motives, I find such a tax may induce first-order losses due to the distortion of idiosyncratic risk-sharing. A transaction tax induces both a contemporaneous inaction region and intertemporal shifting of transaction realizations. Given a segmented market over multiple trading platforms and the choice of at least two different tax instruments, I develop sufficient statistic formulas that differ from standard optimal commodity tax theory in that they account for untaxed capital accumulation, market structure rents, and uncertain returns.

Keywords: Financial transactions tax, portfolio allocation

JEL Classification: H21, G11, H26

Suggested Citation

Coelho, Maria, Dynamic and Cross-Platform Optimal Financial Transaction Taxation (April 13, 2016). Available at SSRN: https://ssrn.com/abstract=2876332 or http://dx.doi.org/10.2139/ssrn.2876332

Maria Coelho (Contact Author)

University of California, Berkeley, College of Letters & Science, Department of Economics ( email )

Berkeley, CA
United States

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