AD ALTA
JOURNAL OF INTERDISCIPLINARY RESEARCH
THE INFLUENCE OF THE TRANSACTION TAX ON THE SELECTED ECONOMIC INDICATORS
a
MARTINA REGÁSKOVÁ,
b
ANNA BÁNOCIOVÁ
Faculty of Economics, Technical University of Košice, Němcovej
32, 04001 Košice, Slovakia
email:
a
martina.regaskova@gmail.com,
b
anna.banociova@tuke.sk
This research was supported by VEGA project No. 1/0430/19 Investment decision-
making of investors in the context of effective corporate taxation.
Abstract: The paper focuses on the effect of transaction taxes in the French financial
market and the selected economic indicators. We would like to point out the
importance of transaction taxes on the economy in the EU and to analyse the influence
of this tax on the single European capital market. We assume that financial transaction
tax (FTT) has a positive effect on economic growth and that the correlation between
FTT and the hedging assets is statistically significant. We used a regression model
where we analyse FTT, economic growth, market volume, price of index CAC40, total
financial assets, financial derivatives, and debt instruments. Our results have shown
the negative impact on market volume as well as on economic growth shortly after the
adopting FTT in France.
Keywords: financial transaction tax, financial regulation, EU market, France.
1 Introduction
The tax system fulfils several important functions in the
economy. Taxes are a source of public revenue, a source of risk
reduction in the financial sector, and a source of additional
funding in a case of a bank failure. Except from stabilizing
function of taxes, they also serve as an instrument for risk
prevention to correct market fragmentation. To prevent, or at
least to mitigate the effects of future financial crises due to risky
operations with financial instruments, it is important that a
country (or group of countries) has an effective tax system. An
effective and optimal tax system should regulate the volume of
short-term, high-risky transaction activities in the financial
sector. The literature currently discusses on appropriate form of
financial services and banking regulation, on the optimal tax
system of derivatives in speculative strategies, or on the impact
of fiscal taxes and capital regulation on the stability of the
financial system. Within the EU Member States, taxation is very
actual issue in the context of understanding harmonization and
integration process.
Because of different tax systems within the EU Member States,
the research in taxation of financial instruments is becoming a
challenge for finding optimal system for transparent capital
market and competitive fiscal union. Therefore, our motivation
is to evaluate the impact of financial transaction tax on capital
market, and to find out how this tax influences the development
of economic indicators, such as trading volume of financial
assets, volatility, economic growth, or derivatives instruments.
There are several types of taxation of financial transactions and
financial instruments in the world economies. It is a direct form
of taxation (such as financial transaction tax, FTT), and indirect
form of taxation (such as value-added tax or financial activity
tax, FAT). In the United Kingdom, the Unites States,
Switzerland, China or in most Asian countries, there is
applicable a stamp duty which includes all types of shares and
securities as well as electronic financial transactions. Another
type of transaction taxation is security transaction tax (STT) on
purchases and sales of securities, which is applicable in South
Korea, South Africa, or Taiwan. In Belgium or Poland, there is a
transfer tax that taxes on transfers of shares ownership. The
indirect tax that is promoted by the International Monetary fund
at the international level, represents financial activity tax (FAT),
which taxes on total profits, dividends and remunerations that
are paid by financial institutions. The main argument for
introducing FAT is that the profits bring value added, but due to
the VAT exemption of financial services, these revenues are not
taxed. Finally, with a structure remarkably like the STT, it is a
financial transaction tax that has provoked the most discussion
among professionals and at the EU level in recent times. FTT is
applied in various forms in countries such as France, Italy,
Finland, or Brazil. After the financial crisis in 2008/09, there are
stronger opinions on the introduction of FTT within EU
countries, as a fiscal policy instrument to prevent the crisis and
provide an additional budgetary source to cover debt costs in the
financial sector or to protect markets from speculative
transactions.
Since 2012, the debate on the European financial transaction tax
has been more discussed between the European Commission and
European Ministers of Finance, especially in Germany. In the
context of the individual Member States, FTT as a direct form of
taxation represents an economic policy instrument for regulating
and stabilizing the common capital market. It aims to eliminate
risky speculative activities on the market, to prevent transactions
that could lead to financial fraud and to provide additional
sources to the European budget.
In this paper, we will focus on the analysis of the effectiveness
of FTT in France. The aim is to determine the impact of this tax
on the French market in comparison with the period before and
after the adoption of the tax. The contribution is divided into
general introduction and three chapters. The first chapter
presents the theoretical background and studies which deal with
taxation on financial markets from different points of view. In
the second chapter, there is described the methodology, our
assumed hypothesis and data used. In the third analytical
chapter, we interpret our results and compare them with similar
studies. To analyse the impact of FTT, we used regression
analysis. In conclusion, we summarize our results and
recommend further analysis in this field for future research
2 Theoretical background
The ideas of the tax burden of financial instruments are not new
and began to emerge in the late 19
th
and early 20
th
centuries,
especially in the United Kingdom and the Nordic countries of
Europe. Transaction taxes experienced more significant
improvement during the Great Depression, promoted by J. M.
Keynes. Later, during the 1970s, at a time of high price volatility
and asset price fluctuations, J. Tobin came up with the idea of
proposing transaction tax on assets to stabilize markets and to
ensure stable exchange rates. In those times, the economic policy
aimed to find a balance model for the financial assets’ prices,
increase market efficiency and limit speculative transactions.
The recent global financial crisis in 2008/09 was evidence how
the financial sector can significantly affect the functioning of the
economy. In literature, there can be found some studies
analysing the financial and debt crisis and discussing about the
use of fiscal taxes as an instrument for regulating market
activities (Colliard & Hoffmann, 2017). Also, we can find tax
studies focus on maintaining the effective corporate taxation
(Andrejovska & Pulikova, 2019; Andrejovska et al., 2015),
financial stability or small and medium businesses (Andries et
al., 2017; Mura et al., 2017), supporting the economic growth
(Raisová, 2015), evaluating corporate taxation and its impact on
the competitiveness within the European countries (Mihokova, et
al., 2016) increasing the efficiency of capital market (Bodnar et
al., 2003; Pastor et al., 2017), or regulating speculative tax
strategies with derivatives (Batram, 2019).
Generally, recent theoretical and empirical studies focus on two
main areas in FTT analysis: (1) on the effect of the tax on market
volatility, and (2) on the effect of the tax on trading volume.
Pomeranets & Weaver (2011) claimed the general hypothesis
that the correlation between FTT and market volume is
statistically significant and an increase in tax would lead to an
increase in volatility of prices of some financial assets. Baltagi et
al. (2006) emphasized that the introduction of FTT can lead to
speculative transfer from taxed to non-taxed transactions, or non-
taxed foreign financial markets. Colliard & Hoffmann (2017)
and Chou & Wang (2006) determined the impact of FTT on
market liquidity and price volatility. Hanke et al. (2010) found
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