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Securities Transaction Taxes and Financial Markets

30 Pages Posted: 29 Jan 2006  

Karl Habermeier

International Monetary Fund (IMF)

Andrei A. Kirilenko

Imperial College London - Centre for Global Finance and Technology

Date Written: May 2001

Abstract

This paper argues that securities transaction taxes throw sand not in the wheels, but into the engine of financial markets where the transformation of latent demands into realized transactions takes place. The paper considers the impact of transaction taxes on financial markets in the context of four questions. How important is trading? What causes price volatility? How are prices formed? How valuable is the volume of transactions? The paper concludes that transaction taxes or such equivalents as capital controls can have negative effects on price discovery, volatility, and liquidity and lead to a reduction in the informational efficiency of markets.

Keywords: securities transaction taxes, capital controls

JEL Classification: G13, G14, G15, G18, H23, H26

Suggested Citation

Habermeier, Karl and Kirilenko, Andrei A., Securities Transaction Taxes and Financial Markets (May 2001). IMF Working Paper, Vol. , pp. 1-30, 2001. Available at SSRN: https://ssrn.com/abstract=879453

Karl Habermeier (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Andrei Kirilenko

Imperial College London - Centre for Global Finance and Technology ( email )

South Kensington Campus
London, SW7 2AZ
United Kingdom

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