The Relationship Between Financial Transactions Costs and Economic Growth
AbstractThe opponents of financial transactions taxes (FTTs) have argued that the imposition of such taxes will slow economic growth by raising the cost of capital. The argument is that if the cost of buying and selling stock and other financial assets is higher, then it makes it more expensive for firms to raise capital. This is true even if the initial sale is exempted from the tax, since the fact that future sales will be subject to the tax will lower the price of stocks sold in the secondary market, which would mean that even initial offerings will command a lower price. However, there are reasons for believing that offsetting factors could mean that higher transactions costs do not have a negative impact on growth and could even have a positive impact. This paper reviews some of the arguments as to why higher transactions costs may actually lead to better working financial markets. It then examines the relationship between growth and transactions costs for a limited set of countries for which transactions cost data are available. It finds that for this group of countries that is a strong positive relationship, with higher transactions costs actually being associated with higher growth.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Center for Economic and Policy Research (CEPR) in its series CEPR Reports and Issue Briefs with number 2012-10.
Length: 6 pages
Date of creation: Mar 2012
Date of revision:
Contact details of provider:
Postal: 1611 Connecticut Ave, NW Suite 400, Washington, DC 20009
Phone: (202) 293-5380
Fax: (202) 588 1356
Web page: http://www.cepr.net/
More information through EDIRC
taxes; speculation; transactions; economic growth;
Find related papers by JEL classification:
- G - Financial Economics
- G1 - Financial Economics - - General Financial Markets
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G2 - Financial Economics - - Financial Institutions and Services
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- H - Public Economics
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.