Security Transaction Taxes and Market Quality

Pomeranets, Anna; Weaver, Daniel G.

doi:10.2139/ssrn.1980185

Cited by 25 publications

(25 citation statements)

References 21 publications

(1 reference statement)

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“…The empirical evidence is somewhat mixed. While a number of papers find an increase in volatility (Baltagi et al, 2006;Hau, 2006;Pomeranets -Weaver, 2011), others find a negative relationship between an FTT and volatility (Jones -Seguin, 1997;Liu -Zhu, 2009) or no effect (Roll, 1989;Saporta -Kan, 1997).…”

Section: Effects On Volatility and Trading Volumesmentioning

confidence: 99%

A Global Financial Transaction Tax - Theory, Practice and Potential Revenues

Pekanov

Schratzenstaller

2019

SSRN Journal

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This study presents in detail the concept of a financial transaction tax (FTT) and the theoretical and empirical evidence in favour and against introducing it, the potential revenues, different implementation designs and its ability to correct various market failures. We analyse the benefits and challenges of introducing a tax on financial transactions, putting special focus on the introduction of such a tax on a worldwide scale. For a number of reasons, international cooperation is deemed a central prerequisite for an efficient FTT. The purpose of the tax is to raise substantial revenues and help dampen excessive financial market speculation and market volatility. An FTT would ensure that the financial sector contributes more substantially to government revenues. In its optimal form, the tax would be broad-based and there will be no financial instrument types exempted. In a second step, we analyse from a political economy perspective the prospects, the current status, and the lessons learnt from the European discussion on the implementation of an FTT. Finally, we calculate the revenue potential of a global FTT and report how much revenues would accrue to specific countries. We estimate that the tax, if imposed globally and taking into account still evasion, relocation and lock-in effects, can bring significant revenues-between 237.

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Section: Effects On Volatility and Trading Volumesmentioning

confidence: 99%

A Global Financial Transaction Tax - Theory, Practice and Potential Revenues

Pekanov

Schratzenstaller

2019

SSRN Journal

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“…There is general consensus in the empirical literature on FTT that it distorts market quality via a reduction in market volume and liquidity, an increase in market volatility and the cost of capital for firms (Amihud (1993); Umlauf (1993) (2011)). The study by Pomeranets and Weaver (2011) examines changes in market quality associated with nine modifications to the New York State Securities Transaction Tax (STT) between 1932 and 1981. They find that the New York FTT increased individual stock volatility, widened bidask spreads, increased price impact, and decreased volume on the New York Stock Exchange.…”

Section: Some Advantages and Disadvantages Of Implementing An Fttmentioning

confidence: 99%

Balancing the Regulation and Taxation of Banking

Chaudhry

Mullineux

Agarwal

2015

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This study gives an overview of bank taxation as an alternative to prudential regulations or non-revenue taxation. We review existing bank taxation with a view to eliminating distortions in the tax system, which have incentivized banks to engage in risky activities in the past. We focus particularly on 'too big to be allowed to fail' banks, which have been enjoying a competitive advantage over their smaller counterparts. We furthermore analyze taxation of financial instruments trading and taxation of banking products and services and their ability to finance resolution mechanisms for banks and to ensure their stability. In this respect, we put forward the following arguments: (1) that a financial transaction tax is economically inefficient and potentially costly for the economy and may not protect taxpayers; (2) that a bank levy is perhaps good for financial stability to finance resolution mechanisms, but that it poses the threat of double taxation, together with the proposed Basel III liquidity ratios;and (3) that we support the elimination of exemption from value added tax (VAT) for financial services in order to provide banks with a level playing field, whilst retaining exemption for basic payments services. This is expected to improve efficiency because it might stop the wasteful use of financial services. To avoid distortions, VAT should be applied to all financial services, including complex ones such as derivatives. VAT might reduce bank lending because of higher costs for customers, but arguably there was over-borrowing prior to the financial crisis.

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“…There is a general consensus in the empirical literature that FTT reduces in market volume and liquidity and increases market volatility and the cost of capital (Amihud & Mendelson, 1992;Umlauf, 1993;Jones & Seguin, 1997;Baltagi et al 2006;Bloomfield et al, 2009;Pomeranets & Weaver, 2011). The study by Pomeranets & Weaver (2011) There is also the notorious example of an FTT in Sweden in 1984, which introduced a 1% tax on equity transactions in 1984, which it increased to 2% in 1986 (Umlauf, 1993).…”

Section: Financial Transactions Tax (Ftt)mentioning

confidence: 99%

“…The study by Pomeranets & Weaver (2011) There is also the notorious example of an FTT in Sweden in 1984, which introduced a 1% tax on equity transactions in 1984, which it increased to 2% in 1986 (Umlauf, 1993). He found that stock prices and turnover declined after an increase in the rate of FTT to 2% in 1986.…”

Section: Financial Transactions Tax (Ftt)mentioning

confidence: 99%

Balancing Bank Regulation and Taxation

2014

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This study gives an overview of bank taxation as an alternative to prudential regulations or nonrevenue taxation. We review existing bank taxation with a view to eliminating distortions in the tax system, which have incentivized banks to engage in risky activities in the past. We furthermore analyze taxation of financial instruments, trading and taxation of banking products and services and their ability to finance resolution mechanisms for banks to ensure their stability. In this respect, we put forward the following arguments: (1) that a financial transaction tax is economically inefficient and potentially costly for the economy and may not protect taxpayers; (2) that a bank levy used to finance deposit guarantee and bank resolution mechanisms is potentially useful for financial stability, but that it poses the threat of double taxation, together with the proposed Basel III liquidity ratios; and (3) that we support the elimination of exemption from value added tax (VAT) for financial services in order to provide banks with a level playing field, whilst retaining exemption for basic payments services. This is expected to improve efficiency by reducing the wasteful use of financial services.

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Security Transaction Taxes and Market Quality

Cited by 25 publications

References 21 publications

A Global Financial Transaction Tax - Theory, Practice and Potential Revenues

A Global Financial Transaction Tax - Theory, Practice and Potential Revenues

Balancing the Regulation and Taxation of Banking

Balancing Bank Regulation and Taxation

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