Market microstructure matters when imposing a Tobin tax—Evidence from the lab

Michael Kirchler, Jürgen Huber and Daniel Kleinlercher

Journal of Economic Behavior & Organization, 2011, vol. 80, issue 3, 586-602

Abstract: Trading in FX markets is dominated by two microstructures: exchanges with market makers and OTC-markets without market makers. Using laboratory experiments we test whether the impact of a Tobin tax is different in these two market microstructures. We find that (i) in markets without market makers an unilaterally imposed Tobin tax (i.e. a tax haven exists) increases volatility. (ii) In contrast, in markets with market makers we observe a decrease in volatility in unilaterally taxed markets. (iii) An encompassing Tobin tax has no impact on volatility in either setting. Efficiency does not vary significantly across tax regimes.

Keywords: Tobin tax; Market makers; Double-auction; Dealership market; Experiment; Volatility; Market efficiency; Foreign exchange (search for similar items in EconPapers)
JEL-codes: C91 E62 F31 G14 G15 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:80:y:2011:i:3:p:586-602

DOI: 10.1016/j.jebo.2011.06.001

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