The Consequences of Transaction Taxes: An Empirical Analysis
Posted: 22 Mar 2012 Last revised: 16 Sep 2012
Date Written: March 5, 2012
A tax on financial transactions was recently proposed in the E.U. Parliament as a way to generate significant revenues. This article empirically shows that such a transaction tax would cripple modern securities markets. Specifically, the article demonstrates how a transaction tax of as little as 0.05% imposed on trading of the stock of the IBM on the New York Stock Exchange would reduce IBM’s market liquidity and related trading volume by at least 32%. A 0.50% tax proposed by Pollin, Baker and Schaberg (2003) would reduce the trading volume of IBM by at least 85%. The tax would have further negative impact on long-term economic growth across various markets.
Keywords: transaction tax, securities, economic growth
JEL Classification: E47, G38, G19, O16
Suggested Citation: Suggested Citation