Politically Motivated Taxes in Financial Markets: The Case of the French Financial Transaction Tax

39 Pages Posted: 5 Feb 2013 Last revised: 4 Jun 2013

See all articles by Stephan Meyer

Stephan Meyer

Karlsruhe Institute of Technology

Martin Wagener

Stuttgart Stock Exchange

Christof Weinhardt

Karlsruhe Institute of Technology

Date Written: June 4, 2013

Abstract

This paper studies the effects of the introduction of the French financial transaction tax in August 2012. With the tax, the French government aims to generate revenues for financing the burdens of the financial crisis and to curb short-term trading. We find that the financial transaction tax has a strong impact on trading intensity and liquidity supplier behavior. Trading volume decreases by about one-fifth compared to the pre-event period. While liquidity suppliers reduce the number of quote and price updates and post less volume at best prices, there is no evidence that spreads increase. Our results suggest that policy makers need to be well aware of the links between tax design and investor behavior, before introducing a financial transaction tax.

Keywords: Financial Transaction Tax, Trading Intensity, Market Liquidity

JEL Classification: G10, G14, G18

Suggested Citation

Meyer, Stephan and Wagener, Martin and Weinhardt, Christof, Politically Motivated Taxes in Financial Markets: The Case of the French Financial Transaction Tax (June 4, 2013). Available at SSRN: https://ssrn.com/abstract=2211748 or http://dx.doi.org/10.2139/ssrn.2211748

Stephan Meyer (Contact Author)

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

Martin Wagener

Stuttgart Stock Exchange ( email )

Börsenstraße 4
Stuttgart, 70174
Germany

Christof Weinhardt

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

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