The stock market effects of a securities transaction tax: Quasi-experimental evidence from Italy |
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| Affiliation: | 1. European Central Bank – Directorate General Macroprudential Policy & Financial Stability, Germany;2. Bank of Italy – Directorate General for Economics, Statistics and Research, Italy;1. CMVM—Portuguese Securities Commission, Rua Laura Alves 4, 1050-138 Lisboa, Portugal;2. CEFAGE—Universidade de Évora, Largo dos Colegiais 2, 7000-803 Évora, Portugal;1. University of Otago, Dunedin, New Zealand;2. University of Melbourne, Australia;3. Goethe University Frankfurt, Germany;1. Federal Reserve Bank of Cleveland, 1455 East 6th Street, Cleveland, OH, United States;2. Wharton School, University of Pennsylvania, Philadelphia, PA, United States;1. Deutsche Bundesbank, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt am Main, Germany;2. London School of Economics, Houghton St, London WC2A 2AE, United Kingdom |
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| Abstract: | In the aftermath of the financial crisis, in several countries new levies on the financial sector have been proposed and in some cases implemented. We focus in particular on the recent introduction of a securities transaction tax (STT) in Italy. A peculiarity of the Italian STT is that it only concerns stocks of corporations with a market capitalization above € 500 million. We exploit this feature via a differences-in-differences approach – comparing taxed and non-taxed stocks before and after the introduction of the tax – and via a regression discontinuity design – comparing the performance of stocks just above the threshold with those just below. Focusing on the regulated market, we find that the new tax reduced liquidity, but it left transaction volumes and returns substantially unaffected. There is also evidence – although not conclusive – that the tax increased volatility. |
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| Keywords: | Securities transaction tax Market liquidity Market volatility |
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