Taxing Emerging Stock Markets: A Beneficial Policy? Evidence from the Stockholm Stock Exchange, 1907-1939

The question of whether financial markets should be taxed or not has been debated extensively. In this study, the gradual rise in public taxation of the Stockholm Stock Exchange during the first half of the 20th century is examined and evaluated. The empirical findings, focusing on trading volume and volatility, show that transaction taxes caused substantial crowding out of trading activity and led to lower asset prices. Hence, some support is given to the proponents of a more cautious policy of financial market taxation, especially in emerging stock markets.