Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/262043 
Year of Publication: 
2021
Series/Report no.: 
Staff Report No. 993
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
We develop a new methodology to estimate the impact of a financial transaction tax (FTT) on financial market outcomes. In our sequential trading model, there are price-elastic noise and informed traders. We estimate the model through maximum likelihood for a sample of sixty New York Stock Exchange (NYSE) stocks in 2017. We quantify the effect of introducing an FTT given the parameter estimates. An FTT increases the proportion of informed trading, improves information aggregation, but lowers trading volume and welfare. For some less-liquid stocks, however, an FTT blocks private information aggregation.
Subjects: 
financial transaction tax
market microstructure
structural estimation
JEL: 
G14
D82
C13
Document Type: 
Working Paper

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