Tax reforms and the decline of the London stock market: the untold story

Suren Gomtsian Gomtsyan and Edmund-Philipp Schuster

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Various reasons have been put forward for the declining global relevance of the London equity market. Reform proposals and changes already implemented target some of the major problems identified as reasons for the stock market's decline. Surprisingly, tax related explanations for the current state of the UK stock market are largely absent from the discourse. This paper argues that the preferential tax treatment of the dividend income of UK pension funds and insurance companies introduced in the early 1970s and repealed in the mid 1990s first contributed to the UK stock market's growth by implicitly subsidising financing via equity and encouraging the flow of the funds of these investors into the market, and subsequently led to the market's decline as a result of the outflow of the funds of the two major classes of institutional investors: UK pension funds and insurance companies. The key implication of this argument is that omitting tax as a major factor in the decline of the UK stock market risks ending up with reforms that can, at best, do little to change the current situation.

Keywords: corporate governance; dividend taxation; institutional investors; London stock market; pension funds; tax (search for similar items in EconPapers)
JEL-codes: F3 G3 J1 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2024-09-17
New Economics Papers: this item is included in nep-cfn, nep-his and nep-pbe
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Published in European Company and Financial Law Review, 17, September, 2024, 21(2), pp. 234 - 268. ISSN: 1613-2548

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:123539

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