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Stamp Duty on Shares and Its Effect on Share Prices

Author

Listed:
  • Steve Bond
  • Mike Hawkins
  • Alexander Klemm

Abstract

This paper provides an empirical study of the effect of a transaction tax on share prices, using changes in the rate of stamp duty in the UK as quasi-experiments. Because the impact of a stamp duty is expected to depend on how frequently particular shares are traded, we employ a difference-of-differences methodology. We find that announcements of reductions in stamp duty had a significant and positive effect on the price of more frequently traded shares compared to less frequently traded shares. As expected under the efficient-markets hypothesis, the subsequent implementation of previously announced cuts did not affect returns differentially.

Suggested Citation

  • Steve Bond & Mike Hawkins & Alexander Klemm, 2005. "Stamp Duty on Shares and Its Effect on Share Prices," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(3), pages 275-297, November.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200511)61:3_275:sdosai_2.0.tx_2-v
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    References listed on IDEAS

    as
    1. Victoria Saporta & Kamhon Kan, 1997. "The effects of Stamp Duty on the Level and Volatility of Equity Prices," Bank of England working papers 71, Bank of England.
    2. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
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    More about this item

    Keywords

    stamp duty; transaction tax; quasi-experiment; tax reform;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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