The Stock Market Effects of a Securities Transaction Tax: Quasi-Experimental Evidence from Italy

32 Pages Posted: 30 Aug 2016

Date Written: August 30, 2016

Abstract

We study the effects on the stock market of a securities transaction tax (STT). In particular, we focus on the recent introduction of a STT in Italy. Indeed, a peculiarity of the Italian STT is that it only concerns stocks of corporations with a market capitalization above 500 million euros. We exploit this feature via a differences-in-differences approach (comparing taxed and non-taxed stocks both before and after the introduction of the new tax). We find that the new tax widened the bid-ask spread and increased volatility, while it left transaction volumes and returns substantially unaffected. Results are broadly similar using a regression discontinuity design, in which we confront the performance of stocks just above the threshold with those just below.

Keywords: securities transaction tax, market liquidity, market volatility

JEL Classification: G14, G18, H24

Suggested Citation

Cappelletti, Giuseppe and Guazzarotti, Giovanni and Tommasino, Pietro, The Stock Market Effects of a Securities Transaction Tax: Quasi-Experimental Evidence from Italy (August 30, 2016). ECB Working Paper No. 1949. Available at SSRN: https://ssrn.com/abstract=2831947

Giuseppe Cappelletti (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Giovanni Guazzarotti

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Pietro Tommasino

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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