Securities Transaction Taxes: Macroeconomic Implications in a General-Equilibrium Model
The paper studies the impact of a securities transaction tax (STT) on financial trading, stock prices and real economic variables in a closed-economy dynamic stochastic general-equilibrium model featuring financial frictions. The model incorporates channels by which 'noise trading' affects real economic volatility. Firms' investment expenditure is related to the value of their outstanding shares. The model is calibrated to stylised facts of financial trading and firms' financing. The simulations suggest distortive effects of the STT on real variables similar to those of corporate income taxation. At the same time, the STT reduces economic volatility, but this stabilisation gain is quantitatively modest.
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