Market vs. Residence Principle: Experimental Evidence on the Effects of a Financial Transaction Tax

Jürgen Huber, Michael Kirchler, Daniel Kleinlercher () and Matthias Sutter
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Daniel Kleinlercher: University of Innsbruck

No 7978, IZA Discussion Papers from Institute of Labor Economics (IZA)

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: residence principle; experimental finance; Financial Transaction Tax; market principle (search for similar items in EconPapers)
JEL-codes: C91 E62 G10 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2014-02
New Economics Papers: this item is included in nep-acc, nep-exp, nep-ifn, nep-mac, nep-mst and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Forthcoming - published in: Economic Journal, 2017, 127, F610-631

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Working Paper: Market vs. residence principle: experimental evidence on the effects of a financial transaction tax (2014)
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