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.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.