More cons than pros?
The stock price impact of STT can be in either direction. Empirical evidence from Sweden shows that the imposition of 1% STT in 1983 led to a decline of 5.3% in the Swedish equity market within one month of the introduction of the tax. Stamp tax rate of 0.3% was introduced in China in 1990 and was doubled a few months later. The rate had to be soon revised back to its original level following a substantial fall in the stock market.
Besides, the introduction of STT also impacts volumes of trade by inducing migrations to other untaxed locations or to untaxed/lesser taxed domestic substitutes. The Swedish experience serves as the classic example in support of this argument. A massive migration of Swedish trading volumes to the London Stock Exchange followed the introduction of STT on Swedish brokerage services during 1983-91. Statistics suggest that the trading of Swedish stocks inside Sweden as a percentage of turnover in other offshore exchanges averaged 61% in 1988, falling to 56% in 1990. Moreover, STT on Swedish fixed income instruments caused a migration to other domestic substitutes such as Swedish debentures. Another case is that of Taiwan, where reduction of the tax levied on futures transactions on the Taiwanese futures market from 5 to 2.5 basis points led to a significant reverse migration of trade to Taiwan from Singapore. A few econometric studies have found that stock market trading volume elasticities with
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