Journal of Financial Services Research

, Volume 47, Issue 2, pp 177–202 | Cite as

Politically Motivated Taxes in Financial Markets: The Case of the French Financial Transaction Tax

  • Stephan Meyer
  • Martin Wagener
  • Christof Weinhardt


This paper studies the effects of the introduction of the French financial transaction tax in August 2012. With the tax, the French government aims to generate revenues for financing the burdens of the financial crisis and to curb short-term trading. We find that the financial transaction tax has a strong impact on trading intensity and liquidity supplier behavior. Trading volume decreases by about one-fifth compared to the pre-event period. While liquidity suppliers reduce the number of quote and price updates and post less volume at best prices, there is no evidence that spreads increase. Our results suggest that policy makers need to be well aware of the links between tax design and investor behavior, before introducing a financial transaction tax.


Financial Transaction tax Trading intensity Market liquidity 



Financial support from Boerse Stuttgart is gratefully acknowledged. The views expressed here are those of the authors and do not necessarily represent the views of the Boerse Stuttgart.We thank an anonymous referee for valuable feedback.


  1. Amihud Y, Mendelson H (1986) Asset pricing and the bid-ask spread. J Financ Econ 17(2):223–249CrossRefGoogle Scholar
  2. Baltagi BH, Li D, Li Q (2006) Transaction tax and stockmarket behavoir: evidence form an emergingmarket. Empir Econ 31(2):393–408CrossRefGoogle Scholar
  3. Bessembinder H (2003) Issues in assessing trade execution costs. J Financ Mark 6(3):233–257CrossRefGoogle Scholar
  4. Cambell JY, Froot KA (1994) International experiences with securities transaction taxes. In: Frankel JA (ed) The internalization of equity markets. University of Chicago Press, ChicagoGoogle Scholar
  5. Colliard J-E, Hoffmann P (2013) Sand in the chips: evidence on taxing transactions in an electronic market. Working paperGoogle Scholar
  6. Darvas Z, Weizsäcker J (2011) Financial transaction tax: small is beautiful. Soc Econ 33(3):449–473CrossRefGoogle Scholar
  7. Davies RJ, Kim SS (2009) Using matched samples to test for differences in trade execution costs. J Financ Mark 12(2):173–202CrossRefGoogle Scholar
  8. Hendershott T, Riordan R (2012) Algorithmic trading and the market for liquidity. J Financ Quant Anal (forthcoming)Google Scholar
  9. Huang RD, Stoll HR (1996) Dealer versus auction markets: a paired comparison of execution costs on NASDAQ and NYSE. J Financ Econ 41(3):313–357CrossRefGoogle Scholar
  10. Jones CM, Seguin PJ (1997) Transaction costs and price volatility: evidence from commission deregulation. Am Econ Rev 87(4):728–737Google Scholar
  11. Keynes JM (1936) General theory of employment, interest rates and money. New York, Harcourt Brace and WorldGoogle Scholar
  12. Kupiec P (1996) Noise traders, excess volatility, and a securities transactions tax. J Financ Servi Res 129:115–129CrossRefGoogle Scholar
  13. Lee CM, Ready MJ (1991) Inferring trade direction from intraday data. J Financ 46(2):733–746CrossRefGoogle Scholar
  14. Liu S, Zhu Z (2009) Transaction costs and price volatility: new evidence from the Tokyo stock exchange. J Financ Serv Res 36(1):65–83CrossRefGoogle Scholar
  15. Menkveld AJ (2013) High-frequency trading and the new market makers. J Financ Mark (forthcoming)Google Scholar
  16. Metheson T (2011) Taxing financial transactions: iusses and evidence. IMF working paperGoogle Scholar
  17. Newey WK, West KD (1987) A simple, positive semi-definite, heteroskedasticity and autocorelation consistent covariance matrix. Econometrica 55(3):703–708CrossRefGoogle Scholar
  18. Riordan R, StorkenmaierA,WagenerM(2011) Domultilateral trading facilities contribute tomarket quality? Working paperGoogle Scholar
  19. Schulmeister S, Schratzenstaller M, Picek O (2008) A general financial transaction tax: motives, revenues, feasibility and effects. White PaperGoogle Scholar
  20. Schwert GW, Seguin PJ (1993) Securities transaction taxes: an overview of costs, benefits and unresolved questions. Financ Anal J 49(5):27–35CrossRefGoogle Scholar
  21. Securities and Exchange Commission (2010) Concept release on equity market structure, release no. 34-61458; file no. s7-02-10. White paperGoogle Scholar
  22. Summers L, Summers VP (1989) When financial markets work too well: a cautious case for a securities tax. J Financ Serv Res 3(2–3):261–286CrossRefGoogle Scholar
  23. Thompson SB (2011) Simple formulas for standard errors that cluster by both firm and time. J Financ Econ 99(1):1–10CrossRefGoogle Scholar
  24. Tobin J (1978) A proposal for international monetary reform. Eastern Econ J 4(3–4):153–159Google Scholar
  25. Umlauf SR (1993) Transaction taxes and the behavior of the swedish stock market. J Financ Econ 33(2):227–240CrossRefGoogle Scholar
  26. Venkataraman K (2001) Automated versus floor trading: an analysis of execution costs on the Paris and New York exchanges. J Financ 56(4):1445–1485CrossRefGoogle Scholar
  27. White H (1980) Using least squares to approximate unknown regression functions. Int Econ Rev 21(1):149–170CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  • Stephan Meyer
    • 1
  • Martin Wagener
    • 2
  • Christof Weinhardt
    • 3
  1. 1.Research Group Financial Market InnovationKarlsruhe Institute of TechnologyKarlsruheGermany
  2. 2.Boerse Stuttgart Holding GmbHStuttgartGermany
  3. 3.Institute of Information Systems and MarketingKarlsruhe Institute of TechnologyKarlsruheGermany

Personalised recommendations