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Stamp duty on shares and its effect on share prices

Author

Listed:
  • Stephen Bond

    (Institute for Fiscal Studies and Nuffield College, Oxford)

  • Mike Hawkins

    (Institute for Fiscal Studies)

  • Alexander Klemm

    (Institute for Fiscal Studies)

Abstract

This paper provides a discussion of stamp duty and its effects. This is followed by an empirical study using changes in the rate of stamp duty in the UK as natural experiments. Because shares will be affected differently depending on how frequently they are traded, we can employ a difference-in-differences methodology. We find that the announcements of cuts in stamp duty had a significant and positive effect on the price of more frequently traded shares compared to other shares. As expected under the efficient markets hypothesis, the implementation of cuts (when at a different date from the announcement) did not affect returns differentially.

Suggested Citation

  • Stephen Bond & Mike Hawkins & Alexander Klemm, 2004. "Stamp duty on shares and its effect on share prices," IFS Working Papers W04/11, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:04/11
    as

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    File URL: http://www.ifs.org.uk/wps/wp0411.pdf
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    References listed on IDEAS

    as
    1. Victoria Saporta & Kamhon Kan, 1997. "The effects of Stamp Duty on the Level and Volatility of Equity Prices," Bank of England working papers 71, Bank of England.
    2. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Stamp duty; transaction tax; Tobin-tax; natural experiment; tax reform;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H29 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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