In this paper we discuss the effects of a Transaction Tax on an artificial market with varying liquidity where a large number of agents can trade a share of a risky asset. A market maker is in charge to optimally set the level of taxation in order to obtain a desired mixture of activity and volatility. We show that, depending on the liquidity of the market, two possible regimes of optimal taxation emerge: a non-negligible level of taxation for highly liquid markets and low (close to zero) levels of taxation for low liquidity markets. This outcome resembles the two-tier rate structure discussed by Spahn in his famous contributions (see [1]).
Optimality of a two-tier rate structure for a Transaction Tax in an artificial market / D. Liuzzi, P. Pellizzari, M. Tolotti (COMMUNICATIONS IN COMPUTER AND INFORMATION SCIENCE). - In: Highlights in Cyber-Physical Multi-Agent Systems / [a cura di] J. Bajo, Z. Vale, K. Hallenborg, A.P.a Rocha, P. Mathieu, P. Pawlewski, E. Del Val, P. Novais, F. Lopes, N.D. Duque Méndez, V. Julián, J. Holmgren. - [s.l] : Springer International Publishing, 2017. - ISBN 9783319602844. - pp. 95-106 [10.1007/978-3-319-60285-1_8]
Optimality of a two-tier rate structure for a Transaction Tax in an artificial market
D. Liuzzi;
2017
Abstract
In this paper we discuss the effects of a Transaction Tax on an artificial market with varying liquidity where a large number of agents can trade a share of a risky asset. A market maker is in charge to optimally set the level of taxation in order to obtain a desired mixture of activity and volatility. We show that, depending on the liquidity of the market, two possible regimes of optimal taxation emerge: a non-negligible level of taxation for highly liquid markets and low (close to zero) levels of taxation for low liquidity markets. This outcome resembles the two-tier rate structure discussed by Spahn in his famous contributions (see [1]).
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Optimality of a Two-Tier Rate Structure for a Transaction Tax in an Artificial Market.pdf
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Liuzzi2017_Chapter_OptimalityOfATwo-TierRateStruc.pdf
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