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Effect of Tobin Tax on Trading Decisions in an Experimental Minority Game

  • Dipyaman SanyalEmail author
Chapter
Part of the New Economic Windows book series (NEW)

Abstract

James Tobin (The new economics one decade older: the Elliot Janeway lectures in honor of Joseph Schumpeter. Princeton University, Princeton, 1974, [1]) proposed a transactions tax for currency trading to reduce volatility in this highly speculative market. We conduct a 40-period experiment using a financial market mechanism and introduce a tax after 20 periods. While earlier experimental studies have used double auctions to study the Tobin Tax, our experiment uses a completely speculative market design (the minority game) which better emulates global currency markets. We find that trading volumes fall after the tax is imposed supporting results from existing studies, but in contrast to these studies, we observe a significant decrease in volatility (without any effect on market size). Our experimental findings are largely in line with a simulation model using the minority game developed by Bianconi et al. (J Econ Behav Organ 70(1–2):231–240, 2009, [2]) where the authors find that “the introduction of Tobin taxes in agent-based models of currency markets can lead to a reduction of both speculative trading and the magnitude of exchange rate fluctuations.”

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Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.School of Social SciencesCentre for Economic Studies and Planning, Jawaharlal Nehru UniversityNew DelhiIndia

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