This paper studies the international experience with securities transaction taxes (STTs), using the Swedish and British systems as case studies. We argue that STTs are best thought of as taxes on different resources used in transactions: domestic brokerage services in the case of Sweden, and registration services in the British case. STTs give investors incentives to economize on the taxed resources by shifting trading to foreign markets or untaxed assets, or by reducing the volume of trade. We show that these effects can be important. Estimated revenues from an STT will be correspondingly overstated if they ignore such behavioral effects.
*Published: This paper was subsequently published as International Experiences with Securities Transaction Taxes, John Y. Campbell, Kenneth A. Froot, in NBER book The Internationalization of Equity Markets (1994)
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