A Tobin tax only on sellers

A market trading model shows that a Tobin tax affects the portfolio weight of the risky asset and thus the portfolio risk. As risk changes, the demand under a Tobin tax becomes more elastic for buyers and sellers but more inelastic for short sellers. Imposing a Tobin tax lowers market volatility for trading that does not involve a short seller. In addition, it is shown that imposing the tax solely on the seller, in comparison with splitting the tax equally between the buyer and the seller, further reduces market volatility. Simulation results confirm these predictions of the model.