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Might a Securities Transactions Tax Mitigate Excess Volatility? Some Evidence from the Literature

Markus Haberer
University of Konstanz - Department of Economics

April 2004

University of Konstanz Discussion Paper No. 04/06

Abstract:
International financial markets are said to be excessively volatile due to destabilizing speculation and excessive market volume. Transactions taxes might help. From studying the literature we conclude that there must be an optimal market liquidity, which minimizes excess volatility. There are two effects when imposing a transactions tax. Both reduce excess volatility in highly speculative markets when tax rates are small. The total tax effect then is unambiguous. However, in illiquid markets the tax might raise volatility.

Keywords: International financial markets, securities transactions tax, excess volatility

JEL Classifications: G15, G18, H20

Working Paper Series

Date posted: November 03, 2004 ; Last revised: November 03, 2004

Suggested Citation

Haberer, Markus, Might a Securities Transactions Tax Mitigate Excess Volatility? Some Evidence from the Literature (April 2004). University of Konstanz Discussion Paper No. 04/06. Available at SSRN: http://ssrn.com/abstract=572023

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Contact Information

Markus Haberer (Contact Author)

University of Konstanz - Department of Economics ( email )

D-78457 Konstanz Germany