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Securities Transaction Taxes: Literature and Key Issues

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Encyclopedia of Finance

Abstract

The main scope of this chapter is to review the literature and key issues associated with securities transaction taxes (STTs). Despite the use of STTs around the globe, the theoretical and empirical literature on the impact an STT has on liquidity and volatility is mixed.

If an STT is not appropriately designed, it could interfere with the smooth functioning of financial markets, lead to informational inefficiency, arbitrage, tax evasion and double taxation. Effective implementation of STTs therefore requires cross-jurisdictional coordination, controls on cross-border transactions and carefully constructed enforcement.

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Notes

  1. 1.

    See Umlauf (1993) and Cortez and Vogel (2011).

  2. 2.

    STTs have been used in the U.S., U.K., Taiwan, Hong Kong and Sweden, among others. For more details see Matheson (2011).

  3. 3.

    The order processing component is part of the fixed cost the market-maker charges for trade execution. The inventory risk component is the market-maker’s compensation for holding onto risky assets. The information asymmetry component represents the likelihood that a market-maker is facing an informed trader who has superior knowledge of the asset’s fundamental value.

  4. 4.

    The abolition of fixed commissions is a pseudo-tax because it is a one-time decrease in the transaction costs on the New York and American Stock Exchanges.

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Authors and Affiliations

  1. Bank of Canada, Ottawa, Canada

    Anna Pomeranets

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  1. Anna Pomeranets
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Correspondence to Anna Pomeranets .

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Editors and Affiliations

  1. Dept. Finance, Rutgers University, Rockafeller Road 94, New Brunswick, 08854-8054, New Jersey, USA

    Cheng-Few Lee

  2. College of Business, San Francisco State University, Holloway Ave. 1600, San Fransisco, 94132, California, USA

    Alice C. Lee

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Pomeranets, A. (2013). Securities Transaction Taxes: Literature and Key Issues. In: Lee, CF., Lee, A. (eds) Encyclopedia of Finance. Springer, Boston, MA. https://doi.org/10.1007/978-1-4614-5360-4_66

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  • DOI: https://doi.org/10.1007/978-1-4614-5360-4_66

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  • Publisher Name: Springer, Boston, MA

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  • Online ISBN: 978-1-4614-5360-4

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