Securities Transaction Taxes and Financial Markets

Karl Habermeier and Andrei Kirilenko

No 2001/051, IMF Working Papers from International Monetary Fund

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: WP; informational efficiency; price discovery; equity trading; securities transaction taxes; capital controls; transaction volume; round-trip transaction; transaction price volatility; market liquidity; market microstructure study; derivative transaction; securities transaction tax; market participant; Transaction tax; Stocks; Asset prices; Options; North America (search for similar items in EconPapers)
Pages: 30
Date: 2001-05-01
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Citations: View citations in EconPapers (47)

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