Abstract
This article investigates the effects of the securities transaction tax (STT) on market trading volume and return volatility using Chinese data. We found strong evidence to support a negative relationship between STT and market trading volume. The shrinking of the tax base casts doubt on the idea of using STT to increase government revenue. Furthermore, the impact of STT on market volatility is mixed. Examination of dually listed stocks in mainland China and Hong Kong further corroborates these findings.
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