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

  • Markus Haberer


    (Department of Economics, University of Konstanz)

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    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
    Date of revision:
    Handle: RePEc:knz:cofedp:0406
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