Market vs. residence principle: experimental evidence on the effects of a financial transaction tax

Jürgen Huber, Michael Kirchler, Daniel Kleinlercher and Matthias Sutter

No ECO2014/03, Economics Working Papers from European University Institute

Abstract: While politically attractive in order to generate tax revenues, the effects of a financial transaction tax (FTT) are scientifically disputed, not the least because seemingly small details of its implementation may matter a lot. In this paper, we provide experimental evidence on the different effects of a FTT, depending on whether it is implemented as a tax on markets, on residents, or a combination of both. We find that the effects of a tax on markets are different from a tax on residents, with negative effects of a market tax on volatility and trading volume. The residence principle shows none of these undesired effects. In addition to studying aggregate market outcomes, we investigate how individual traders react to different forms of a FTT and whether their risk attitude is related to these reactions. We find no such relationship, meaning that a FTT affects traders with different risk tolerances similarly.

Keywords: Financial transaction tax; Experimental finance; Residence principle; Market principle (search for similar items in EconPapers)
JEL-codes: C91 E62 G10 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-exp and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://cadmus.eui.eu/bitstream/handle/1814/30077/ECO_2014_03.pdf main text

Related works:
Working Paper: Market vs. Residence Principle: Experimental Evidence on the Effects of a Financial Transaction Tax (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2014/03

Access Statistics for this paper

More papers in Economics Working Papers from European University Institute Badia Fiesolana, Via dei Roccettini, 9, 50014 San Domenico di Fiesole (FI) Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Cécile Brière ().