Original paper

Journal of Evolutionary Economics

, Volume 13, Issue 1, pp 53-70

First online:

Heterogeneous traders and the Tobin tax

  • Frank WesterhoffAffiliated withUniversity of Osnabrück, Department of Economics, Rolandstrasse 8, 49069 Osnabrück, Germany (e-mail: fwesterho@oec.uni-osnabrueck.de)

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To study the effectiveness of the Tobin tax, we develop a model of heterogeneous interacting agents. Traders either speculate on the basis of technical or fundamental analysis, or abstain from the market, a decision which depends on profit considerations, as well as communication between agents. Simulations generate stylized facts such as unit roots in exchange rates, fat tails for returns, or volatility clustering. The imposition of a Tobin tax leads to a crowding out of speculators and stabilizes the dynamics. However, the decreasing impact of fundamentalists triggers misalignments if tax rates are too high.

Key words: Foreign exchange markets – Tobin tax – Technical and fundamental analysis
JEL Classification: F31, G14