Sustainability-oriented future EU funding: a financial transaction tax

Although responsibility for realizing the Europe 2020 strategy is shared between the EU and its 28 member states, the main criticism of the current EU budget relates to the lack of a link between the budget and the Europe 2020 strategy. Therefore the paper focuses on a new budget design as well as alternative revenue sources. One of the possible candidates is a financial transaction tax (FTT). To research FTT revenue potential, a model based on a remittance system was designed. We analyse full or partial replacement of VAT- and GNI-based own resources by the transfer of tax revenues from a FTT raised on the national level to the EU budget. The research reveals that FTT-based own resource would be able to fully replace GNI-based own resource only for some EU member states; however, VAT-based own resource can be fully replaced by a FTT-based own resource for the entire EU. Further, results also show that from the EU11 (28) perspective, the tax is sufficient to fully replace VAT- or GNI-contributions if levied on the EU11 (28) level (not on the national level) as a direct payment to the EU budget without tracking the source member State.     

Transaction costs and informational cascades in financial markets

We study the effect of transaction costs (e.g., a trading fee or a transaction tax, like the Tobin tax) on the aggregation of private information in financial markets. We implement a financial market with sequential trading and transaction costs in the laboratory. According to theory, eventually all traders neglect their private information and abstain from trading (i.e., a no-trade informational cascade occurs). We find that, in the experiment, informational no-trade cascades occur when theory predicts they should (i.e., when the trade imbalance is sufficiently high). At the same time, the proportion of subjects irrationally trading against their private information is smaller than in a financial market without transaction costs. As a result, the overall efficiency of the market is not significantly affected by the presence of transaction costs.     

The societal benefit of a financial transaction tax

We provide a novel justification for a financial transaction tax for economies where agents face stochastic consumption opportunities. A financial transaction tax makes it more costly for agents to readjust their portfolios of liquid and illiquid assets in response to liquidity shocks, which increase both the demand for and the price of liquid assets. The higher price improves liquidity insurance and welfare for other market participants. We calibrate the model to U.S. data and find that the optimal financial transaction tax is 1.6% and that it reduces the volume of financial trading by 17%.     

On the Tobin Tax

Abstract

This paper clarifies why a transaction tax, such as the Tobin Tax, can stabilize financial markets. In markets that are already fairly deep, relatively small changes in trading volume are unlikely to have any impact (positive or negative) on volatility. Thus, a Tobin Tax can potentially have a stabilizing effect on international currency markets not because it reduces the excessive volume of transactions of speculators, but because it can slow down the speed with which market traders react to changes in prices of currencies. Moreover, it can lower their elasticity of future price expectations with respect to current price changes, which also has a stabilizing effect. Thus, to the extent that a Tobin Tax causes traders in financial markets to delay their decisions, a few ‘grains of sand in the wheels of international finance’ can indeed be stabilizing. Whether or not that is sufficient to prevent speculative attacks on currencies is a different matter.     

Speculative and hedging interaction model in oil and U.S. dollar markets with financial transaction taxes

Our article develops a game theory model of interaction between speculative and hedging behaviors in the oil and US dollar markets, in the presence of a severe taxation on speculative financial transactions. From this microeconomic analysis, we derive a regulatory policy. This policy has two consequences at the macro level: on one hand, it has a certain stabilizing effects on oil and US dollar markets, limiting the number of speculative transactions and their size; on the other hand, it induces the speculators to find agreements with real economic agents, which are profitable for both parts. Moreover, we propose that the tax is mostly re-directed to support the real economy. So, the aim of this paper appears twofold: by using Game Theory, we suggest to a pair of economic agents a way to gain in a market, also in presence of a hard taxation on the financial transactions, proposing, at the same time, to normative authority, a method to limit the instability of oil and U.S. Dollar markets and to help real economy. Our idea, at the micro-economic level, is to exploit the hedging actions to obtain a profit, limiting, at the same time, at a macro-level, the speculative attacks on oil and U.S. Dollar markets. These goals are reached by the introduction of well designed financial transactions tax. In particular, we focus on a real economic subject (Multinational Air) and on an investment bank (Bank). The solutions collectively efficient are determined, at a micro-level, by certain agreements between the two economic subjects. Specifically, after an agreement which allows to obtain the maximum collective profit of the interaction, we propose and analyze four different possible fair divisions of this gain, by adopting the Kalai–Smorodinsky method.     

US income taxation of new financial products

This paper discusses the response of the US federal income tax to financial innovation. Income taxation in the US and elsewhere has traditionally relied on distinctions, such as the difference between fixed and contingent returns, that can be undermined by new financial products. The principal tax law responses to innovative products have been: (1) transactional analysis, which aggregates or disaggregates new transactions to conform them to existing legal categories, (2) taxation of changes in market value, rather than realization events, (3) taxation based on an assumed formula, and (4) anti-avoidance administrative approaches.     

Information–driven trading at the Prague Stock Exchange: Evidence from Intra–Day Data

Many observers argue that informed and insider trading is widespread in the emerging financial markets of transition countries, yet rigorous treatment of this issue has been virtually non–existent. The current paper estimates the extent of informed trading on the Prague Stock Exchange (PSE) using intra–day transaction data. Our estimates confirm that the average share of informed trading is equal to 0.32, which is high relative to developed markets and varies considerably among stocks. Using the Easley et al. (1996) approach on the very best segment of the PSE we obtained a high average probability of informed trading. Since data used in this study cover the period after the major attempts to improve market regulations, our results indicate that the PSE needs further strengthening to recover credibility and to become a real source of corporate financing. JEL classification: G14, G15.     

中国证券交易印花税的变革趋势

通过对当前国外各个主要市场经济国家(地区)资本市场印花税制现状和变革历程的研究发现,取消或减免证券交易印花税几乎成为国际金融市场税制改革的主流,但这种变革趋势受到本次金融危机的挑战而方向难定。鉴于证券交易印花税的收入与调节作用,中国在中短期内会保留该税种,并把握资本市场的基本规律与改革的时机,逐步完善金融市场税制。     

A SECURITIES TRANSACTIONS TAX AND CAPITAL MARKET EFFICIENCY

This paper revisits the debate on the securities transaction tax (STT). The analysis uses Tobin's (1984) taxonomy of financial market efficiency to examine the potential effects of such a tax and concludes that a STT probably would not enhance the overall functioning of financial markets.     

Predictability of equity returns during a financial crisis

An occurrence of a market crash or a financial crisis has long been considered a cause of market inefficiency. An inefficient market commonly implies return predictability and the existence of profitable opportunities for traders and speculators. Technical analysis has been a popular tool to identify predictable patterns in asset prices. The usefulness of a large universe of technical trading rules popularized in the existing literature on technical analysis is tested when they are applied to a set of equity markets that are generally considered developed and efficient during the two most recent periods of major financial turmoil: the 1997 Asian financial crisis and the 2008 global financial crisis. Three major statistical deficiencies that existing studies on return predictability are commonly criticized for – data snooping bias, nonsynchronicity bias and transaction costs – have been incorporated in the analysis. Technical trading rules are largely unable to yield abnormal excess returns over the passive benchmark after data snooping bias, nonsynchronous pricing and transaction costs are accounted for. Chaotic price movements typical for a volatile market during a financial crisis are likely to have an adverse effect on the performance of active trend chasing trading strategies.     

税收流失的博弈分析

从财政交易制度框架内看,税收流失其实是一种交易成本。纳税人与税务当局的非合作博弈,不存在纯战略纳什均衡,但存在混合战略纳什均衡,即税务机关和纳税人分别以一定的概率随机选择稽查和逃税,同时,税收流失也表现为征税中存在的纳税与人政府、政府与纳税人以及政府、税务机关与税务人员三种委托代理问题。因此,依法治税的激励结构设计至少应包括四个方面：保证财政交易制度中的支出面与税收收入基本对称：优化税制;税务机关激励纳税人讲实话的制度安排,对税务人员的激励。     

The effect of the tax reform act of 1986 on the location of assets in financial services firms

This paper examines the effects of the Tax Reform Act of 1986 on the international location decisions of U.S. financial services firms. The Act included rule changes that made it substantially more difficult for U.S. firms to defer U.S. taxes on overseas financial services income held in low-tax jurisdictions. We use information from the tax returns of U.S. corporations to examine how local taxes affect the allocation of financial assets held abroad by financial services firms. We find that, before the Act, the location of reported assets in financial subsidiaries was responsive to differences in host country tax rates across jurisdictions. However, after the Act, differences in host country tax rates no longer explain the distribution of assets held in financial services subsidiaries abroad. Our results suggest that the tightening of the anti-deferral provisions applicable to financial services companies has been successful in diminishing the effect of host country income taxes on asset location decisions.     

Spillover effects of the 2008 financial crisis on NIE stock markets

This article estimates dynamic conditional correlations of stock returns across countries by using DCC–GARCH model and analyse spillover effects of the 2008 financial crisis on the NIE’s stock markets. The results show that there is no regime shift in mean equation of the correlation coefficient during the financial crisis. It may imply there are no mean spillover effects of the US financial crisis on the NIE’s stock markets. However, there are volatility spillover effects of the financial crisis sparked in 2008 from the US to the NIE’s markets.     

Optimal asset taxes in financial markets with aggregate uncertainty

This paper studies Pareto-optimal risk-sharing arrangements in a private information economy with aggregate uncertainty and ex ante heterogeneous agents. I show how to implement Pareto optima as equilibria when agents can trade claims to consumption contingent on aggregate shocks in financial markets. The first result is that if aggregate and idiosyncratic shocks are independent, the implementation of optimal allocations does not require any interventions in financial markets. This result can be extended to dynamic settings in the sense that, in this case, only savings need to be distorted, but not trades in financial markets. Second, I characterize optimal trading distortions in financial markets when aggregate and idiosyncratic shocks are not independent. In this case, optimal asset taxes must be higher for those securities that pay out in aggregate states in which consumption is more volatile. For instance, this can provide an efficiency justification for the frequently observed differential tax treatment of different asset classes, such as debt and equity claims.     

Will that be cash or credit? Payment preferences and rising VAT in Argentina

This article studies how Argentina’s value-added tax (VAT) revenue has risen to historic highs since its 2001 sovereign default and continues to grow despite unchanged VAT rates, slow economic growth, stagnant household consumption, and low commodity prices after 2010. In 2015, VAT revenue accounted for one-quarter of all tax revenue in Argentina. We show that Argentina’s banked population went from less than 41.6% in 2003 to 89.6% in 2016. Consequently, there was significant growth in electronic payments via credit cards and debit cards. Using time series regression, the authors show that the rising banked population and card growth is correlated with VAT-to-GDP increases from 2002 to 2015. The authors posit that one reason for these correlations is that some consumption is shifting from informal (harder to tax) markets to formal (easier to tax markets) as cash use declined and card use grew. Also, rising electronic payments likely explains improved VAT compliance as well—the Argentine VAT noncompliance rate averaged 36.4% between 2000 and 2005 but improved to 20.5% between 2006 and 2010 (Trigueros, Longinotti, & Vecorena, 2013).     

Tax bases,tax rates and the elasticity of reported income

Tax reforms usually change both tax rates and tax bases. Using a panel of income tax returns spanning the two major U.S. tax reforms of the 1980s and a number of smaller tax law changes, I find that the elasticity of income reported on personal income tax returns depends on the available deductions. This highlights that this key behavioral elasticity is not an immutable parameter but rather that it can be to some extent controlled by policy makers. One implication is that base broadening reduces the marginal efficiency cost of taxation. The results are very similar for all income categories indicating that the rich are more responsive to tax rates because tax rules that apply to them are different (their tax base is narrower). The point estimates indicate that the Tax Reform Act of 1986 reduced the marginal cost of collecting a dollar of tax revenue, with roughly half of this reduction due to the base broadening and the other half due to the tax rate reduction. As a by-product, the analysis in this paper offers a reconciliation of disparate estimates obtained by previous studies of the tax responsiveness of income.     

论我国财政收入规模与结构的科学化及实现途径

通过对我国财政收入规模和结构的实证分析，可得到财政收入规模的合理区间范围；通过对中央和地方一般预算收入分级比重情况、税收收入和非税收入结构情况以及税收收入结构情况的分析，可取得财政收入结构的合理区间范围，以实现我国财政收入运行科学化。     

The impact of the French financial transaction tax on HFT activities and market quality

Based on the first results, the French government estimates that the tax on cancelled orders, considered as tax on High Frequency Trading (HFT), generated no revenue in 2012. Our paper question the effectiveness of a modified cancelled order tax with no exemptions, all orders cancelled or modified within half-second time span are taxed. Our study has important implications for the regulation of HFT; we provide recommendations for regulators in relation to market rules which have yet to be introduced, using an artificial market framework. This paper addresses the question of whether this tax leads to a reduction in HFT activities and, as a result, to deterioration or amelioration of market quality. The evidence we provide should help market regulators to better understand the role played by HFT firms as liquidity suppliers. We show that HFT liquidity is short-lived. With the implementation of tax, decreased HFT activities do not have a statistically significant impact on market volatility and market liquidity measured by bid/ask spreads, but decrease dollar volumes as a liquidity measure. In addition, reduced HFT activities lead to less efficient markets as the deviation from fundamentals increases.     

Existence of financial market equilibria with transaction costs

The purpose of this paper is to give an existence proof of equilibria in a two-period exchange economy with incomplete markets and transaction costs. When tradings on financial markets incur real transaction costs —interpreted as costs of enforcement of financial contracts or real taxation of financial revenues —the set of individual portfolios is bounded by the limited resources of the economy. Existence of equilibria then follows from Kakutani 's fixed point theorem.     

Taxation for the 21st century: the automated payment transaction (APT) tax

This paper examines the desirability and feasibility of replacing the present system of personal and corporate income, sales, excise, capital gains, import and export duties, gift and estate taxes with a single comprehensive revenue neutral Automated Payment Transaction (APT) tax. In its simplest form, the APT tax consists of a flat tax levied on all transactions. The tax is automatically assessed and collected when transactions are settled through the electronic technology of the banking/payments system. The APT tax introduces progressivity through the tax base since the volume of final payments includes exchanges of titles to property and is therefore more highly skewed than the conventional income or consumption tax base. The wealthy carry out a disproportionate share of total transactions and therefore bear a disproportionate burden of the tax despite its flat rate structure. The automated recording of all APT tax payments by firms and individuals eliminates the need to file tax and information returns and creates a degree of transparency and perceived fairness that induces greater tax compliance. Also, the tax has lower administrative and compliance cost. Like all taxes, the APT tax creates new distortions whose costs must be weighted against the benefits obtained by replacing the current tax system.