Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/61018 
Year of Publication: 
2012
Series/Report no.: 
CESifo Working Paper No. 3870
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper studies the impact of a financial transactions tax on a financial market where financial institutions trade with each other. Assets are marked to the market and financial institutions with negative equity are forced out of business. There are two main results: First, if all banks have enough liquidity so that they can honor their short-term obligations, a financial transactions tax is entirely neutral. Second, in a model with correlated investment risk and short-term financing of banks, a financial transactions tax contributes to financial distress and undoes other policy measures that are used to stabilize financial markets.
Subjects: 
financial transactions tax
financial stability
financial markets
cash-in-the-market-pricing
marking-to-market
JEL: 
H22
G18
G21
G28
Document Type: 
Working Paper
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