Securities Transaction Taxes and Market Quality

Bank of Canada Working Paper 2011-26

35 Pages Posted: 7 Jan 2012 Last revised: 13 Feb 2013

Anna Pomeranets

Bank of Canada

Daniel G. Weaver

Rutgers Business School

Date Written: February 8, 2013

Abstract

We study changes in market quality variables associated with nine modifications to the New York State Securities Transaction Tax (STT) between 1932 and 1981. We find that when there is an increase in the level of an STT, individual stock volatility increases, bid-ask spreads widen, price impacts are greater, and volume decreases. Our evidence suggests that there is no significant relation between the level of an STT and volatility of portfolios. We examine the propensity of traders to switch trading locations to avoid the tax and find mixed evidence that they will change locations.

Keywords: transaction tax, Tobin tax, market quality, volatility, transfer tax, taxation

JEL Classification: G18, G28, H20

Suggested Citation

Pomeranets, Anna and Weaver, Daniel G., Securities Transaction Taxes and Market Quality (February 8, 2013). Bank of Canada Working Paper 2011-26. Available at SSRN: https://ssrn.com/abstract=1980185 or http://dx.doi.org/10.2139/ssrn.1980185

Anna Pomeranets

Bank of Canada ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada

Daniel G. Weaver (Contact Author)

Rutgers Business School ( email )

94 Rockafeller Road
Piscataway, NJ 08854
United States
848.445.5644 (Phone)
732.445.2333 (Fax)

HOME PAGE: http://weaver.rutgers.edu

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