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Might a Securities Transactions Tax Mitigate Excess Volatility?: Some Evidence From the Literature

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Author Info
Markus Haberer () (Department of Economics, University of Konstanz)
Abstract

International financial markets are said to be excessively volatile due to destabilizing speculation and excessive market volume. Transactions taxes might help. From studying the literature we conclude that there must be an optimal market liquidity, which minimizes excess volatility. There are two effects when imposing a transactions tax. Both reduce excess volatility in highly speculative markets when tax rates are small. The total tax effect then is unambiguous. However, in illiquid markets the tax might raise volatility.

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Paper provided by Center of Finance and Econometrics, University of Konstanz in its series CoFE Discussion Paper with number 04-06.

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Length: 32 pages
Date of creation: Sep 2004
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Handle: RePEc:knz:cofedp:0406

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Related research
Keywords: International Financial Markets; Securities Transactions Tax; Excess Volatility;

Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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