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Peter Norman Sørensen

is professor of Finance at the University of Copenhagen, where he has worked since 1998. After receiving a PhD from MIT, he was a post-doc at Nuffield College, Oxford. He works in the intersection of economic theory and finance, emphasising the communication and aggregation of private information. He has been awarded the Elite Researcher Prize in Denmark. He is a past coeditor of Economica and the Scandinavian Journal of Economics. He is currently a member of the FRIC Center for Financial Frictions and the CIBS Center for Information and Bubble Studies. He is a member of the council of the European Economic Association as well as the board of the newly established Danish Finance Institute.

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Peter Norman Sørensen: The Financial Transactions Tax in Markets with Adverse Selection

I analyze theoretically how a financial transactions tax affects welfare in an imperfect market. Analysis of the benchmark Glosten-Milgrom model suggests two sets of results. First, the greater is the tax, the less liquid is the market, and the lower is total welfare. Second, realistic redistribution of the tax revenue lets uninformed, liquidity-motivated traders gain with the tax under a simple sufficient condition. This condition, that the tax reduces informed trading more than uninformed trading, can be easily verified in practice: the condition is that the half-spread respond less than one-for-one to tax changes.

Last modified: 2018.11.30.