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Macroeconomic effects of an equity transaction tax in a general-equilibrium model

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  • Lendvai, Julia
  • Raciborski, Rafal
  • Vogel, Lukas

Abstract

The paper studies the impact of an equity transaction tax (ETT) on financial and real variables in a DSGE model with two types of financial frictions: (1) financial intermediaries facing a leverage constraint; (2) noise shocks that lead to the emergence of non-fundamental equity trade. The ETT depresses the demand for equity and hence increases the cost of capital; this then affects firms' investment decisions. In the long run, the tax is found to be as distortive as a corporate income tax. The transaction tax also reduces volatility in financial markets, but the impact on real volatility is limited.

Suggested Citation

  • Lendvai, Julia & Raciborski, Rafal & Vogel, Lukas, 2013. "Macroeconomic effects of an equity transaction tax in a general-equilibrium model," Journal of Economic Dynamics and Control, Elsevier, vol. 37(2), pages 466-482.
  • Handle: RePEc:eee:dyncon:v:37:y:2013:i:2:p:466-482
    DOI: 10.1016/j.jedc.2012.09.010
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:finsta:v:31:y:2017:i:c:p:81-92 is not listed on IDEAS
    2. Cappelletti, Giuseppe & Guazzarotti, Giovanni & Tommasino, Pietro, 2017. "The stock market effects of a securities transaction tax: Quasi-experimental evidence from Italy," Journal of Financial Stability, Elsevier, vol. 31(C), pages 81-92.
    3. Elton Beqiraj & Giovanni Di Bartolomeo & Marco Di Pietro & Carolina Serpieri, 2017. "Resilience, crisis contagion, and vulnerability in Central Europe and the Baltics," JRC Working Papers JRC109632, Joint Research Centre (Seville site).
    4. Rieger, Jörg, 2014. "Financial Transaction Tax and Financial Market Stability with Diverse Beliefs," Working Papers 0563, University of Heidelberg, Department of Economics.
    5. Michał Zator, 2014. "Transaction costs and volatility on Warsaw Stock Exchange: implications for financial transaction tax," Bank i Kredyt, Narodowy Bank Polski, vol. 45(4), pages 349-372.
    6. Beqiraj, Elton & Di Bartolomeo, Giovanni & Di Pietro, Marco & Serpieri, Carolina, 2018. "Comparing Central Europe and the Baltic macro-economies: A Bayesian approach," EconStor Preprints 175242, ZBW - German National Library of Economics.

    More about this item

    Keywords

    Transaction tax; Noise trade; Financial frictions; Cost of capital;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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