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Securities Transaction Taxes for U.S. Financial Markets

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Author Info

  • Robert Pollin

    ()
    (Department of Economics and Political Economy Research Institute (PERI), University of Massachusetts, Amherst)

  • Dean Baker

    (Center for Economic and Policy Research (CEPR))

  • Marc Schaberg

Abstract

This paper examines the viability of security transaction excise taxes (STETs) as one policy tool for promoting a more stable financial environment, specifically with respect to the U.S. economy. Contrary to a large recent critical literature, we show that a STET can be designed without creating large distortions between segments of the financial market. We also show that a modest STET for the U.S.—beginning with a 0.5 percent tax on equity trades and scaled appropriately for other financial instruments—would generate substantial new government revenues, on the order of $100 billion per year.

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File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume29/V29N4P527_558.pdf
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Bibliographic Info

Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 29 (2003)
Issue (Month): 4 (Fall)
Pages: 527-558

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Handle: RePEc:eej:eeconj:v:29:y:2003:i:4:p:527-558

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Postal: c/o Dr. Alexandre Olbrecht, The Anisfield School of Business 205, Ramapo College, 505 Ramapo Valley Road, Ramapo, New Jersey 07430, USA
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Web page: http://www.ramapo.edu/eea/journal.html
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Keywords: Financial Market; Securities;

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References

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  1. Umlauf, Steven R., 1993. "Transaction taxes and the behavior of the Swedish stock market," Journal of Financial Economics, Elsevier, vol. 33(2), pages 227-240, April.
  2. Jones, Charles M & Seguin, Paul J, 1997. "Transaction Costs and Price Volatility: Evidence from Commission Deregulation," American Economic Review, American Economic Association, vol. 87(4), pages 728-37, September.
  3. Arestis, Philip & Demetriades, Panicos O & Luintel, Kul B, 2001. "Financial Development and Economic Growth: The Role of Stock Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(1), pages 16-41, February.
  4. Donald B. Keim & Ananth Madhavan, . "The Cost of Institutional Equity Trades," Rodney L. White Center for Financial Research Working Papers 8-98, Wharton School Rodney L. White Center for Financial Research.
  5. John Y. Campbell & Kenneth A. Froot, 1993. "International Experiences with Securities Transaction Taxes," NBER Working Papers 4587, National Bureau of Economic Research, Inc.
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  7. Subrahmanyam, Avanidhar, 1998. "Transaction Taxes and Financial Market Equilibrium," The Journal of Business, University of Chicago Press, vol. 71(1), pages 81-118, January.
  8. Barry Eichengreen, James Tobin, and Charles Wyplosz., 1994. "Two Cases for Sand in the Wheels of International Finance," Center for International and Development Economics Research (CIDER) Working Papers C94-045, University of California at Berkeley.
  9. Madhavan, Ananth & Richardson, Matthew & Roomans, Mark, 1997. "Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 1035-64.
  10. Peter C. Reiss & Ingrid M. Werner, 1996. "Transaction Costs in Dealer Markets: Evidence from the London Stock Exchange," NBER Chapters, in: The Industrial Organization and Regulation of the Securities Industry, pages 125-176 National Bureau of Economic Research, Inc.
  11. Brorsen, W., 1989. "Futures Trading, Transaction Costs, And Stock Market Volatility," Papers 188, Columbia - Center for Futures Markets.
  12. James Tobin, 1978. "A Proposal for International Monetary Reform," Cowles Foundation Discussion Papers 506, Cowles Foundation for Research in Economics, Yale University.
  13. Summers, L.H. & Summers, V.P., 1989. "When Financial Markets Work Too Well : A Cautious Case For A Securities Transactions Tax," Papers t12, Columbia - Center for Futures Markets.
  14. Davidson, Paul, 1997. "Are Grains of Sand in the Wheels of International Finance Sufficient to Do the Job When Boulders Are Often Required?," Economic Journal, Royal Economic Society, vol. 107(442), pages 671-86, May.
  15. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  16. Roll, R., 1989. "Price Volatility, International Market Links, And Their Implications For Regulatory Policies," Papers t10, Columbia - Center for Futures Markets.
  17. Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272.
  18. Stiglitz, J.E., 1989. "Using Tax Policy To Curb Speculative Short-Term Trading," Papers t2, Columbia - Center for Futures Markets.
  19. repec:fth:pennfi:68 is not listed on IDEAS
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Citations

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Cited by:
  1. Zsolt Darvas & Jakob Weizsäcker, 2011. "Financial transaction tax: Small is beautiful," Society and Economy, Akadémiai Kiadó, Hungary, vol. 33(3), pages 449-473, December.
  2. James Heintz & Robert Pollin, 2003. "Confronting the New York Fiscal Crisis: Raising Revenue Through Taxing Stock Market Transactions," Research Briefs rb2003-4, Political Economy Research Institute, University of Massachusetts at Amherst.
  3. Gagnon, Louis & Andrew Karolyi, G., 2010. "Multi-market trading and arbitrage," Journal of Financial Economics, Elsevier, vol. 97(1), pages 53-80, July.
  4. Rosenthal, Dale W.R. & Thomas, Nordia Diana Marie, 2012. "Transact taxes in a price maker/taker market," MPRA Paper 40556, University Library of Munich, Germany.
  5. Stephan Schulmeister, 2014. "A General Financial Transactions Tax. Motives, Effects and Implementation According to the Proposal of the European Commission," WIFO Working Papers 461, WIFO.
  6. Anna M.Variato, 2003. "The Keynesian Root of the Tobin tax," Working Papers 0305, University of Bergamo, Department of Economics.
  7. Robert Pollin, 2011. "U.S. Government Deficits and Debt Amid the Great Recession: What the Evidence Shows," Working Papers wp263, Political Economy Research Institute, University of Massachusetts at Amherst.
  8. Robert Pollin, 2002. "Globalization and the Transition to Egalitarian Development," Working Papers wp42, Political Economy Research Institute, University of Massachusetts at Amherst.
  9. Danuse Nerudova, 2011. "Taxing the financial sector in the European Union," MENDELU Working Papers in Business and Economics 2011-16, Mendel University in Brno, Faculty of Business and Economics.
  10. Gagnon, Louis & Karolyi, G. Andrew, 2007. "Information, Trading Volume, and International Stock Return Comovements: Evidence from Cross-Listed Stocks," Working Paper Series 2006-11, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  11. Dean Baker, 2006. "The Conservative Nanny State," CEPR Books, Center for Economic and Policy Research (CEPR), number 2006-01, April.
  12. Thornton Matheson, 2012. "Security transaction taxes: issues and evidence," International Tax and Public Finance, Springer, vol. 19(6), pages 884-912, December.
  13. Daniel Fricke & Thomas Lux, 2013. "The Effects of a Financial Transaction Tax in an Artificial Financial Market," Kiel Working Papers 1868, Kiel Institute for the World Economy.
  14. Stephan Schulmeister, 2009. "A General Financial Transaction Tax: The Concept, its Justification and Effects," WIFO Working Papers 352, WIFO.
  15. Su, Yongyang, 2010. "The impact of the securities transaction taxes on the Chinese stock market," MPRA Paper 22695, University Library of Munich, Germany, revised 13 May 2010.
  16. Robert Pollin, 2008. "Considerations on Interest Rate Exogeneity," Working Papers wp177, Political Economy Research Institute, University of Massachusetts at Amherst.

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