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The Impact of Financial Transaction Taxes on Stock Markets: Short-Run Effects, Long-Run Effects, and Reallocation of Trading Activity

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  • Sebastian Eichfelder
  • Mona Noack
  • Felix Noth

Abstract

We investigate the French 2012 financial transaction tax (FTT) and find robust evidence for anticipation effects before the implementation date. Controlling for short-run effects, we only find weak evidence for a long-run reduction in trading activity. Thus, the main impact of the French FTT on trading activity is short-run. In line with liquidity clientele effects, we find a more potent effect for low-liquidity stocks and a reallocation of trading to high-liquidity stocks from the Supplemental Liquidity Provider (SLP) program. Finally, we find weak evidence for a persistent volatility reduction but no indication of a significant FTT impact on price efficiency.

Suggested Citation

  • Sebastian Eichfelder & Mona Noack & Felix Noth, 2022. "The Impact of Financial Transaction Taxes on Stock Markets: Short-Run Effects, Long-Run Effects, and Reallocation of Trading Activity," National Tax Journal, University of Chicago Press, vol. 75(3), pages 539-569.
    • Handle: RePEc:ucp:nattax:doi:10.1086/720406
    DOI: 10.1086/720406
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