Security Transaction Taxes and Market Quality

Anna Pomeranets and Daniel Weaver

Staff Working Papers from Bank of Canada

Abstract: We examine nine changes in the New York State Security Transaction Taxes (STT) between 1932 and 1981. We find that imposing or increasing an STT results in wider bidask spreads, lower volume, and increased price impact of trades. In contrast to theories of STT imposition as a means to reduce volatility, we find no consistent relationship between the level of an STT and volatility. We examine the propensity of traders to switch trading locations to avoid the tax and find no consistent evidence that they will change locations. We do find evidence to suggest that taxes imposed on the par value of stock will result in corporations managing the par value in the direction of minimizing the impact of the tax on investors.

Keywords: Econometric and statistical methods; Financial markets; Market structure and pricing (search for similar items in EconPapers)
JEL-codes: C43 G10 G12 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:11-26

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