Speculation and Tobin taxes: Why sand in the wheels can increase economic efficiency |
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Authors: | Thomas I. Palley |
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Affiliation: | (1) Present address: Public Policy, AFL-CIO, 815 Sixteenth Street NW, 20006 Washington, DC, USA |
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Abstract: | The current paper develops the microeconomic case for a Tobin tax. It combines the noise-trader literature with the Tobin-tax-policy literature. Noise traders cause economic losses by inappropriately cashing out their investments. A Tobin tax can reduce such activity, thereby conferring a benefit on fundamentals investors. The paper identifies the conditions under which these gains would be largest and provides guidelines as to whether a tax is warranted. There is a trade-off because Tobin taxes discourage fundamentals investors from trading, and there are occasions when they would rationally choose to trade but do not because of the tax. |
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Keywords: | noise traders fundamentals investors speculation Tobin taxes |
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