Premium
Optimal Financial Transaction Taxes
Author(s) -
DÁVILA EDUARDO
Publication year - 2023
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.13188
Subject(s) - database transaction , microeconomics , volume (thermodynamics) , transaction cost , economics , planner , tax basis , welfare , value (mathematics) , social planner , tax credit , value added tax , monetary economics , tax reform , computer science , public economics , state income tax , market economy , gross income , physics , quantum mechanics , machine learning , programming language
This paper characterizes the optimal transaction tax in an equilibrium model of financial markets. If investors hold heterogeneous beliefs unrelated to their fundamental trading motives and the planner calculates welfare using any single belief, a positive tax is optimal, regardless of the magnitude of fundamental trading. Under some conditions, the optimal tax is independent of the planner's belief. The optimal tax can be implemented by adjusting its value until total volume equals fundamental volume. Knowledge of (i) the share of nonfundamental trading volume and (ii) the semielasticity of trading volume to tax changes is sufficient to quantify the optimal tax.