Financial markets channel savings to productive investments and provide insurance against liquidity shocks. We analyse the optimal taxation of these activities when agents privately observe their endowments and consumption, but their financial markets investments and trades are publicly observable. The optimal mechanism maximises a convex combination of utilitarian welfare and Rawlsian criterion, subject to incentive constraints when liquidity shocks are increasing wealth. Consequently, the optimal mechanism involves a financial transactions tax. Eliminating financial transaction taxes reduces social welfare but makes the richest agents better off.
Bruno Biais holds a PhD in finance from HEC, received the Paris Bourse dissertation award and the CNRS bronze medal. He taught at Toulouse, Carnegie Mellon, Oxford and LSE, was Research Director at CNRS and is now Professor at HEC. His research on finance, contract theory, political economy, experimental economics and blockchains was published in Econometrica, JPE, AER, Review of Economic Studies, Journal of Finance, RFS and JFE. He was editor of the Review of Economic Studies and of the Journal of Finance and is currently departmental editor for finance at Management Science. He is a fellow of the Econometric Society, the Society for the Advancement of Economic Theory and the Finance Theory group. He was scientific adviser to the NYSE, Euronext, the European Central Bank and the Bank of England. His work on Trading and Post Trading received a senior ERC grant, and his current work on Welfare Incentives Dynamics and Equilibrium is currently funded by a senior ERC grant.