The Real Effects of a Tobin Tax: Evidence from a Quasi‐Natural Experiment in China
42 Pages Posted: 9 May 2014 Last revised: 7 Jul 2014
Date Written: June 1, 2014
This paper evaluates the real effects of a Tobin tax by investigating a policy experiment that reduced this tax on only a subset of equity securities in China. Affected stocks experienced an increase in both liquidity and return volatility. More importantly, the tax reduction further led to an increase in market valuation, investment, innovation, and equity financing, suggesting strong feedback effects from the secondary capital market to the real economy. My results illustrate the negative consequences of imposing a Tobin tax on the financial markets.
Keywords: Tobin Tax, Investment, Innovation, Feedback Effects, Liquidity, Volatility
JEL Classification: H20, G10, G30
Suggested Citation: Suggested Citation