The Consequences of Transaction Taxes: An Empirical Analysis

Posted: 22 Mar 2012 Last revised: 16 Sep 2012

See all articles by Irene Aldridge

Irene Aldridge; Cornell University;; ABLE Alpha Trading, LTD

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

Aldridge, Irene, The Consequences of Transaction Taxes: An Empirical Analysis (March 5, 2012). Available at SSRN: or

Irene Aldridge (Contact Author) ( email )

New York, NY 10128
United States


Cornell University ( email )

Ithaca, NY 14853
United States ( email )

United States

ABLE Alpha Trading, LTD ( email )

New York, NY 10004
United States


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