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Stamp duty on shares and its effect on share prices

Author

Listed:
  • Stephen Bond

    () (Institute for Fiscal Studies and Nuffield College, Oxford)

  • Mike Hawkins

    (Institute for Fiscal Studies)

  • Alexander Klemm

    (Institute for Fiscal Studies)

Abstract

This paper provides a discussion of stamp duty and its effects. This is followed by an empirical study using changes in the rate of stamp duty in the UK as natural experiments. Because shares will be affected differently depending on how frequently they are traded, we can employ a difference-in-differences methodology. We find that the announcements of cuts in stamp duty had a significant and positive effect on the price of more frequently traded shares compared to other shares. As expected under the efficient markets hypothesis, the implementation of cuts (when at a different date from the announcement) did not affect returns differentially.

Suggested Citation

  • Stephen Bond & Mike Hawkins & Alexander Klemm, 2004. "Stamp duty on shares and its effect on share prices," IFS Working Papers W04/11, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:04/11
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    File URL: http://www.ifs.org.uk/wps/wp0411.pdf
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    References listed on IDEAS

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    1. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. "Help for first-time buyers"?
      by chris dillow in Stumbling and Mumbling on 2010-04-13 18:09:12

    Citations

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    Cited by:

    1. European Commission, 2011. "Tax Reforms in EU Member States 2011: tax policy challenges for economic growth and fiscal sustainability," Taxation Papers 28, Directorate General Taxation and Customs Union, European Commission.
    2. Jürgen Antony & Michiel Bijlsma & Adam Elbourne & Marcel Lever & Gijsbert Zwart, 2012. "Financial transaction tax: review and assessment," CPB Discussion Paper 202, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Eichfelder, Sebastian & Lau, Mona & Noth, Felix, 2017. "Financial transaction taxes: Announcement effects, short-run effects, and long-run effects," IWH Discussion Papers 4/2017, Halle Institute for Economic Research (IWH).
    4. Thomas Hemmelgarn & Gaetan Nicodeme, 2010. "The 2008 Financial Crisis and Taxation Policy," Taxation Papers 20, Directorate General Taxation and Customs Union, European Commission.
    5. Lensberg, Terje & Schenk-Hoppé, Klaus Reiner & Ladley, Dan, 2015. "Costs and benefits of financial regulation: Short-selling bans and transaction taxes," Journal of Banking & Finance, Elsevier, vol. 51(C), pages 103-118.
    6. Zsolt Darvas & Jakob Weizsäcker, 2011. "Financial transaction tax: Small is beautiful," Society and Economy, Akadémiai Kiadó, Hungary, vol. 33(3), pages 449-473, December.
    7. Shawn Fremstad, 2008. "Measuring Poverty and Economic Inclusion: The Current Poverty Measure, the NAS Alternative, and the Case for a Truly New Approach," CEPR Reports and Issue Briefs 2008-36, Center for Economic and Policy Research (CEPR).
    8. Danuse Nerudova, 2011. "Taxing the financial sector in the European Union," MENDELU Working Papers in Business and Economics 2011-16, Mendel University in Brno, Faculty of Business and Economics.
    9. Chaudhry, Sajid Mukhtar & Mullineux, Andrew & Agarwal, Natasha, 2015. "Balancing the regulation and taxation of banking," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 38-52.
    10. repec:eee:finsta:v:31:y:2017:i:c:p:81-92 is not listed on IDEAS
    11. Doris Prammer, 2011. "Quality of taxation and the crisis: Tax shifts from a growth perspective," Taxation Papers 29, Directorate General Taxation and Customs Union, European Commission.
    12. 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.
    13. Eichfelder, Sebastian & Lau, Mona, 2016. "Financial transaction taxes: Announcement effects, short-run effects, and long-run effects," arqus Discussion Papers in Quantitative Tax Research 211, arqus - Arbeitskreis Quantitative Steuerlehre.
    14. Copenhagen Economics, 2011. "Elasticities of Financial Instruments, Profits and Remuneration," Taxation Papers 30, Directorate General Taxation and Customs Union, European Commission.
    15. Lensberg, Terje & Schenk-Hoppé, Klaus Reiner & Ladley, Dan, 2012. "Costs and Benefits of Speculation," Discussion Papers 2012/12, Norwegian School of Economics, Department of Business and Management Science.
    16. 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.
    17. Neil McCulloch & Grazia Pacillo, 2010. "The Tobin Tax A Review of the Evidence," Working Paper Series 1611, Department of Economics, University of Sussex.

    More about this item

    Keywords

    Stamp duty; transaction tax; Tobin-tax; natural experiment; tax reform;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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