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JOURNAL OF INTERDISCIPLINARY RESEARCH

out that if policymakers provide additional liquidity on markets
shortly after the introduction of FTT, then price volatility will
decrease. McCulloch & Pacillo (2011) states that transaction tax
could be a source for additional budgetary revenues, and it
cannot lead to tax distortions. Li et al. (2013) found out that
security transaction tax contributes to stabilize markets by
reducing market volatility but has negative effects on market
efficiency.

Also, there are some studies supporting the FTT, as well as
studies that criticize its efficiency. Baltagi et al. (2006), Rühl &
Stein (2014) and Davila (2019) believe that this tax will ensure
financial stability, reduce short-term speculative strategies,
strengthen capital market efficiency, increase market
transparency in line with the real economy and reduce
fluctuations of the financial asset price. These studies provide
evidence that FTT represents an instrument for preventing
market fragmentation. Kastner (2018) focuses on the advocacy
within EU

ﬁnancial industry at different stages of the policy

debate and describes changes after FTT introduction on
regulatory environment. However, opposing arguments (e.g.
Dell’ Era, 2018) provide evidence that applying FTT with
different definitions of tax bases and tax rates make it more
likely to take aggressive strategies in optimizing accounting
profits. In EU countries, opponents argue that different tax rates
in the Member States encourage speculative capital transfers and
increase the risk of financial frauds. Consequently, FTT is a
“double-edged sword” which can lead to a weakening of the
financial position and increase market uncertainty.

Within EU countries, the topic of a financial transaction tax is
very actual in terms of a more detailed understanding of the
effect of the tax on harmonization and the integration process.
The studies analyse FTT in those Member States that have
already introduced it in their national economies and examine
the impact on the economy and economic entities. Hvozdyk &
Rustanov (2016) researched how FTT affects the volatility of the
Italian capital market. Using statistical tests, they have shown
that FTT has a positive effect on the cost of capital, but no effect
on market liquidity. It may mean that the performance of the
capital market depends more on market liquidity of financial
institutions. Schulmeister (2008) emphasizes that FTT reduces
asset price volatility and that total tax revenues in the European
budget would reach 1.6% of GDP if the FTT rate were at the
level of 0.05%. Solilová & Nerudová (2015) research the
possible effect of FTT in EU27 and EU11 and find negative
impact on tax revenues. Authors recommend that FTT is
undesirable to adopt at fragile economic period and recession in
Europe.

FTT in France (FFTT) after its adoption has been analysed in
several studies, where most authors dealt with tax in relation to
total tax revenues, market liquidity, trading volume and total
assets. Becchetti et al. (2014) analysed non-taxed securities with
lower market capitalization than EUR 1 billion. Their findings
did not confirm any significant effect of the tax on market
liquidity. Colliard & Hoffmann (2017) evaluated the French FTT
before and after 2011 (i.e. after the introduction of the tax in the
country) and concluded that there was a slight positive
relationship between transaction taxes and economic growth.
They also found out that after the introduction of FTT, the
volume of shares decreased by 10%. This can be explained by a
decrease in market activity, an increase in possible arbitrage
trades and an increase in the spread between the purchase and
sale price. Griffin & Persaud (2012) came to the opposite
conclusion, explaining the negative relationship between FTT
and economic growth with different periods of holding assets.
Campbell et al. (2011) found by regression analysis that FTT has
a statistically significant effect on expected profits and market
performance. Cappelletti et al. (2017) explained the effect of
FTT on market volatility in the French and Italian markets based
on difference-in-difference analysis (DID). Becchetti et al.
(2014) also based on DID, parametric and non-parametric tests
found a significant decrease in market volume after the
introduction of the French tax compared to non-taxable shares.
Eichfelder & Lau (2017) examined the monthly volatility of the

French stock index CAC40 and found that if most authors
analyse intraday price volatility in their research, it is
questionable whether short-term liquidity is affected by the
transaction tax because the French proposal do not tax net
intraday transactions.

The French FTT model is mentioned in the last proposal of a
European financial transaction tax by the European Commission
from 2019. The conditions for the French transaction tax are as
follows: (Amafi, 2019)

- the tax is applied to any purchase of equity securities issued

by a company listed on a French stock exchange Euronext
with a market capitalization of more than EUR 1 billion (the
reference date is December 1

- the tax rate is at the level of 0.2% for trading transactions

with shares, and 0.01% for highly frequency assets and
credit default swaps.

of previous tax period).

In summary, we can state that the adoption of FTT has both
benefits as well as weaknesses for the economy. The assessment
of the tax is described in the following table (KPMG, 2019).

Tab. 1: Benefits and drawbacks of FTT

Strengths

reduction in the volume of
short-term speculative
transactions

an additional source of
public revenues

increasing the transparency
of the capital market

reduction of fluctuations in
financial assets

Weaknesses

only negligible effect on
economic growth

difficult to determine tax
base

an increase of speculative
transactions from short-
term point of view

total tax revenues are
dependable of real
transaction volume

Opportunities

protection against financial
market fragmentation

improving the efficiency of
capital market

compensation of public
revenues due to the
exemption of financial
services from VAT

limitation of speculative
investment activities

Threats

higher transaction costs
and limited trading with
derivatives instruments

higher risk of aggressive
tax strategies

excessive tax burden on
the financial sector

shifting the tax burden to
final consumers

Source: authors’ proceeding based on literature review

Except for the impact of transaction tax on the financial market,
there is also an analysis of the relationship between tax and
banking regulation. However, it is less often discussed in the
literature. Banks, as market makers, are important economic
entities whose activities are significantly affected by regulatory
measures. Banking regulation requires minimum capital
adequacy requirements to provide sufficient protection against
the financial risks and market failures. Regulatory measures are
primarily aimed at improving market discipline, increasing the
transparency of financial intermediation, and protecting
consumer interests. Based on US data, Schandlbauer (2017)
empirically proves the role of taxes in capital structure and
provides evidence that better-capitalized commercial banks
increase long-term borrowing debt, and therefore they use more
efficient benefits of the tax shield. Conversely, weaker
capitalized banks with lower ability to provide loans have higher
capital financing costs and thus higher tax liability. Andries et al.
(2017) analyse in detail the function of corporate tax as an
instrument for achieving and ensuring the stability of the
financial sector. They evaluate how the tax system affects the
financial statements of banks and confirm the hypothesis that
taxes harm the financial statements in terms of stability and
transparency. Increasing debt financing and the possibility of
debt deduction promotes excessive indebtedness, which does not

contribute to the bank's stability. Andries & Căpraru (2014)
investigates the tax competition within the banking system in EU

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