Transaction Tax Research Articles

The Capital Asset Pricing Model as Modern Austrian Business Cycle Theory

According to Austrian macroeconomic theory, capital accumulation today generates supply tomorrow. Will that supply match tomorrows demand? In this paper we study this question in a multi-good and risky environment with an efficient financial system. Towards this end we develop a model based on the Capital Asset Pricing Model (CAPM), Rational Expectations, and Linear Homogeneous Production Functions. Within this framework we show how the financial system in the form of CAPM allocates resources across the different sectors in the economy so as to maximize the ratio of expected returns to a measure of risk like the standard deviation of returns for some initial time period t=0. In t=1 a Linear Homogeneous Production Function subject to a random productivity shock determines actual output and the structure of production. The link between t=0 and t=1 is Rational Expectations, the assumption that the subjective probability distribution in t=0 on which real investment decision are made is equivalent to the objective distribution generating the actual output/income in t=1. If total output is more (or less) than expected in t=0, we have a cyclical expansion (or recession) the magnitude of which depends on the spread of the subjective probably distribution in t=0. With this model we discuss: 1) monetary policy under a full reserve banking system with Central bank digital accounts for all; 2) an all-inclusive transaction tax to substitute for the U.S. present tax system; 3) the trade-off between economic growth and the cyclical volatility of the economy; and 4) the advantages and disadvantages of trade deficits.

Commodity Transaction Tax (CTT)

This study aims to examine the time-varying correlations and volatility linkages between commodity and equity markets before and after the implementation of the commodity transaction tax (CTT) in India in 2013. The study utilizes symmetric and asymmetric DCC-EGARCH model to estimate correlation dynamics. Evidence suggests that the volatility and dynamic correlation linkages between commodities and equity markets are significantly affected by the triggering events. The time-varying correlations of Comdex-Nifty 50 show an unintended steep decline in the post-CTT period. It is an indication of a “flight to quality” phenomenon, where investors move capital from non-agricultural commodity futures to other cross markets and international markets. However, DCC of Comdex-Dhaanya pair is highly volatile in the post-CTT period and also noticed an increased correlation and volatility between the Dhaanya-Nifty 50 pair. Moreover, the correlation dynamics reveal a certain degree of interdependence between the cross markets, which are lower especially during the triggering episodes.

The impact of tropical storms on tax revenue

AbstractWe investigate the vulnerability of tax revenue and its various sources to hurricane damages. To this end, we construct a monthly panel of hurricane losses, tax revenue, and its components, tax rates, and gross domestic product (GDP) for eight Eastern Caribbean countries over 14 years. Panel vector autoregressions (VAR) show that following a hurricane, any effects are generally short term. The cumulative expected loss in total tax revenue is 5.3%. Revenue derived from international trade and transactions and domestic goods and service are the most negatively affected. Countries with higher value added, as well as international trade and transactions tax rates, appear to be able to buffer the negative impact better, whereas higher property taxes amplify the negative impact of damaging hurricanes on this revenue source.

Digitalization and tax control: the experience of foreign administrations and possibilities for its implementation in Russia

The subject of this research is the experience of foreign administrations on implementation of the instruments of digital tax control and development of the service function of tax authorities. The experience of foreign administrations is viewed within the framework of the response of tax authorities to the manifestations of digitalization, which is also reflected in the emergence of new sources of income and new ways of interaction on the job market. The relevance of this research is defined by digital transformation of the economy, which entails the emergence of new types of relations between taxpayers that, which should be regulated by of tax administrations via expanding the capabilities and methods of tax control, as well as the trend towards customer-oriented tax authorities. A detailed overview is conducted on the experience of Western countries with regards to modernization of tax administration. The statistical data are analyzed for substantiating the conclusions on the positive nature of such experience. The author makes recommendations for the implementation of foreign experience in the Russian tax system. The goal of this work consists in the analysis of foreign experience of implementation of digital technologies in the sphere of taxation, outlining most successful examples of digitalization, as well as assessment of the possibility of implementation of foreign experience by the Russian tax authorities. The novelty lies in the author’s proposal of the new aspects of simplification of tax system, introduction of the new instruments of tax control, and expanding the circle of taxable transactions based on the experience of foreign tax administrations. The conclusion is formulated that the implementation of the practices considered in the article would lead to simplification of the tax system, implementation of the instrument of digital tax control, and expansion of the tax base in different economic sectors.

Financial transaction tax, liquidity, and informational efficiency: Evidence from Italy

This study investigates whether the liquidity of medium-sized and large caps has been differently affected by the Italian Financial Transaction Tax, among the firms subject to the tax. We evaluate changes in mean and median bid-ask spreads and Amihud (2002) liquidity for aggregate market indexes and at the firm level. After the implementation of the tax, spreads have widened more for medium- than for large-caps, whereas the Amihud liquidity measure remained unaltered for the vast majority of the firms.

Impact of ETF Listing on the Returns Generated by Underlying Stocks: Indian Evidence

The advent of exchange traded funds (ETFs) has rendered index trading much affordable compared to their futures counterparts. The present study attempts to examine the impact of ETF listing on the price of the constituent securities of the index that it aims to track. The sample comprises of all the equity ETFs listed in India from 1 January 2002 to 31 March 2019. Event study analysis has been used to examine whether listing of ETFs bore any price impact on the constituent stocks of ETFs. To account for robustness, both parametric and non-parametric tests have been employed. The estimates obtained from event study analysis revealed that the constituent stocks generated insignificant returns for the period extending from January 2002 to March 2009 and April 2009 to March 2013 but positive and significant cumulative average abnormal returns (CAARs) post ETF listing for the period ranging from April 2013 to March 2019, thus providing evidence in support of positive price impact. The permission granted to pension funds, insurers and Employees’ Provident Fund Organisation (EPFO) to invest their funds in ETFs as well as reduction in Securities Transaction Tax (STT) account for the observed price differential. An analysis of the factors accounting for the variation in valuation effects ascertained that the stocks that were traded thinly prior to ETF listing and those forming part of ETFs with larger asset base experienced positive price impact following ETF listing. JEL Codes: G11, G14

The European Union’s decision to introduce a financial transactions tax (FTT) in 2011–2012

The Eurozone was left reeling after the sovereign debt crisis in 2009. Huge bailouts to governments and banks to stabilise the Euro ensued and policymakers within the European Union (EU hereafter) sought to find a solution to the vulnerability of the Euro to volatility induced by currency speculation.1 In 2011, a Financial Transactions Tax (FTT hereafter) was proposed by the European Commission as both a method of recovering some of the funds that were lost due to the remedial fiscal policies that were implemented after the crisis, and also to be used as a corrective mechanism in order to reduce the volatility apparently caused by high frequency trades and currency speculators.2 The tax was to apply to trades in stocks and bonds, as well as derivatives, at a harmonised minimum of 0.1 per cent and a 0.01 per cent tax rate respectively.

CRYPTOCURRENCY MARKET DEVELOPMENT IN LATVIA AND THE BALTIC STATES

The use of digital money creates not only threats, but also opportunities for economic development, but in Latvia and the Baltic countries, they are not sufficiently researched and not widely spread. The paper aims to identify the reasons for the lagging behind of the Baltic countries and Latvia in the development of the cryptocurrency market and to develop recommendations for improving its regulation and functioning. Based on the methods of cross-country, statistical and sociological analysis, the national factors of differences in the functioning and regulation of cryptocurrencies in Latvia, Estonia, and Lithuania have been identified and the risks of its use for illegal activities have been assessed. It is shown that the role of cryptocurrencies in the financial markets of the Baltic States is determined by the degree of their use for payments and investments, which depends on their recognition by the state and investors. It has been revealed that the definition of the concept of cryptocurrency in the EU and the Baltic countries, primarily in the money laundering and terrorist financing (ML/TF) directives, does not stimulate the use of its positive features. A correlation between the restrained attitude towards cryptocurrencies in Latvia and its large-scale business relations with the CIS countries with a higher proportion of shadow economy, caused by the peculiarities of its history and geographical location, has been revealed. The Latvian banking system, under the influence of international regulators, has become less appropriate for operations of non-residents from the East, which increases the risk of using cryptocurrency for ML/FT purposes. The factors of motivation, advantages and difficulties of the businessmen of the Baltic countries they face when dealing with cryptocurrency have been identified, and a discrepancy in the regulation of taxation of transactions with cryptocurrency and the respective activities in Latvia has been revealed. Recommendations are given to the state and private investors pertaining to the integration of cryptocurrencies into the economic space, the implementation of which will contribute to the development of the digital economy and growth of wealth of Latvian residents. The results of the study can be used to improve government regulation and private investments in the cryptocurrency market, as well as in the study and further research of this problem

Flip or Flop? Tobin Taxes in the Real Estate Market

This paper analyzes the effects of transfer taxes targeting property flips on house prices and investment decisions. We study a 2011 reform in Taiwan which required sellers of non-owner occupied properties to pay a surcharge of up to 15% of the full sale price for properties held for two years or less. Linking the universe of personal income tax returns to transaction records, we show immediate and substantial bunching at the two-year holding period threshold, but negligible changes in overall prices. According to our missing mass estimates, the tax generated a 75% drop in one-year flips and a 40% drop in overall second home sales volume. We use shocks to housing net worth from inheritances received after decedents’ untimely deaths to show that investors with more portfolio exposure pass through the tax to buyers. While low-wealth out-of-town investors account for most of the drop in sales volume, locals and non-residents earn similar holding period returns in the pre-reform period. We use spatial and time variation in the severity of typhoon seasons to estimate a 20% share of noise trading prior to the reform. We combine our estimates of the noise trading share and change in short-term sales volume to parametrize a model of optimal financial transaction taxes. The optimal transfer tax on short-term sales is 4%, at most, which is close to the flat transfer tax rates imposed in most major real estate markets. Our results point to market segmentation and inventory effects as key constraints on the effectiveness of property flip taxes towards promoting housing affordability.

Financial transaction tax and market quality: Evidence from France†

AbstractThe effectiveness of Financial Transaction Taxes (FTTs) for deterring speculative trading and improving market quality remains controversial. Studying the FTT imposed in 2012 on large‐cap stocks traded on the Euronext Paris, we find that stocks subject to the FTT subsequently experience significantly decreased turnover and increased spreads relative to the untaxed peers. Further tests suggest that the FTT imposition induces investors to migrate their trades and results in less informativeness in the taxed stocks. Collectively our findings support the view that FTTs deter informed trades and reduce market quality.

Housing Affordability and Transaction Tax Subsidies

House prices have increased faster than average income in many countries over the last decade, raising concerns on the affordability of housing. We study the impact of transaction taxes on the real estate market and the effectiveness of tax subsidies to make housing more affordable. We show how the demand and supply elasticities for housing determine the price impact of tax subsidies and the distribution of gains between buyers and sellers. We then use data on all real estate transactions in Luxembourg from 2007 to 2018 to estimate the elasticity of housing supply and demand. For identification, we exploit discontinuities in the transaction tax schedule as well as rules on tax subsidies for new constructions. Our estimates suggest that the elasticity of house prices to transaction taxes is 0.27, so buyers capture a large part of the surplus from the subsidies.

An Economic Analysis of Restitution for Mistaken Payments

The law of restitution and unjust enrichment has emerged as an important and independent branch of private law. However, it has attracted relatively little economic analysis. The aim of this paper is to develop a general conceptual framework for the economic analysis of the core example of restitution - mistaken payments. Our framework distinguishes between scenarios with unilateral and bilateral harms from mistakes, and unilateral and bilateral precaution by payers and recipients. Using this taxonomy, we develop a formal model in a parsimonious setting with two buyer-seller pairs. This model generates several novel insights, based on the idea that mistaken payments impose a “transaction tax” on contracting parties. It implies that full restitution is socially optimal when harm is unilateral (i.e., when a mistaken payment harms only the payer). When harm is bilateral (i.e., the recipient would suffer net harm from receiving the payment and making full restitution), partial restitution is generally optimal. However, we propose a hypothetical decoupled regime that would (if it were feasible) lead to more efficient outcomes than would partial restitution. The decoupling regime is intended as a thought experiment that can arguably shed light on some of the foundational debates surrounding the law of restitution.

The Politics of Differentiated Integration: What do Governments Want? Country Report - Portugal

This country report analyses the salience and position of differentiated integration (DI) in Portugal in the period between 2004-2020. Employing a quantitative and a qualitative analysis, it first examines the salience of DI models and mechanisms for the successive Portuguese governments using documents such as government programmes, Prime-Minister speeches, parliamentary debates, and statements by the Prime Minister in European Council meetings. Secondly, it reviews governments’ general positions on DI, while zooming in on four peaks of salience: the Lisbon Treaty, the debate on the Unitary Patent, the financial crisis and the discussions on the Financial Transaction Tax and the Fiscal Compact, and the White Paper on the Future of Europe. The results from the salience analysis demonstrate a low saliency of differentiated integration (DI) and, more generally, European integration in Portugal. DI models were more salient than DI mechanisms, while DI instances are the most salient. Salience was enhanced by an increasing intersection between domestic and European politics during the euro crisis period, politicising the debate especially around DI instances of an economic nature. The position of Portuguese governments regarding DI during the period analysed was overwhelmingly negative. In general, this stance was also shared by the opposition parties. Over the period of analysis, a wide consensus stood out among Portuguese political parties that DI models clearly go against both the European – by risking a disaggregation of the EU – and the national interest – by possibly pushing Portugal into an even more peripheral position. Notwithstanding this generally negative view of DI, mainstream parties – which alternated in government during the timeframe of the analysis – viewed the enhanced co-operation mechanism in a generally positive manner, recognising its potential to promote advances in European integration when the EU faced critical deadlocks.

The Politics of Differentiated Integration: What do Governments Want? Country Report - Luxembourg

This report examines the politics of differentiated integration (DI) in Luxembourg between 2004 and 2020. It looks at the salience of DI in government discourse at the conceptual level and also in terms of more concrete references to DI mechanisms and instances. The report aims to define the position of the government of Luxembourg – understood broadly as the set of all political actors. The report relies on quantitative text analysis and qualitative analysis of the salience of DI and Luxembourg’s position on it. Overall, references to DI concepts are rare, although the idea of a multi-speed Europe has been debated. References to DI mechanisms (enhanced cooperation and opt-outs) and specific instances are more frequent than conceptual references in parliamentary debates. The government of Luxembourg generally adopts a neutral or positive position on DI (concepts, mechanisms and instances). Luxembourg supports DI when it refers to a multi-speed Europe in which the country can act as an example of European integration and incentivise other Member States to follow its path. In accordance, Luxembourg tends to reject opt-out mechanisms for Member States in EU law while supporting (and joining) most instances of enhanced cooperation. In general, Luxembourg participates in most mechanisms that can put the country at the vanguard of European integration. In stark contrast, Luxembourg opposed one important instance of enhanced cooperation which it considered would hurt its core financial interests (the Financial Transaction Tax).

Sale and lease of an enterprise including agricultural property. Civil law and tax problems

The article concerns the issue of the sale of an enterprise which includes agricultural real estate. It was found that the provisions of the Act on shaping the agricultural system should be applied when transferring ownership of an enterprise, which includes agricultural real estate or shares of companies that own real estate with an area of more than 5 ha. This means, the sale of the enterprise must be divided into two binding contracts, and when the State Treasury does not exercise its pre-emption right – an ownership transfer contract must be made. Alternatively, the sale of an enterprise may be split into several contracts for agricultural property and other components, but this leads to difficulties in the tax classification of the entire transaction, i.e. whether it should be taxed with civil law transactions tax or each contract for the sale of a part of the enterprise with the tax on goods and services.

Real Estate Transaction Taxes and Credit Supply

We exploit staggered real estate transaction tax (RETT) hikes across German states to identify the effect of house price changes on mortgage credit supply. Based on approximately 33 million real estate online listings, we construct a quarterly hedonic house price index (HPI) between 2008:q1 and 2017:q4, which we instrument with state-specific RETT changes to isolate the effect on mortgage credit supply by all local German banks. First, a RETT hike by one percentage point reduces HPI by 1.2%. This effect is driven by listings in rural regions. Second, a 1% contraction of HPI induced by an increase in the RETT leads to a 1.4% decline in mortgage lending. This transmission of fiscal policy to mortgage credit supply is effective across almost the entire bank capitalization distribution.

Do stock exchanges specialize? Evidence from the New Jersey transaction tax proposal

Do stock exchanges specialize? Evidence from the New Jersey transaction tax proposal

Improvement of Tax Regulation Arrangements for the Russian Stock Market

The paper discusses various options for taxation of transactions with securities issued by Russian companies. The study aims to solve the problem of low investor activity in the Russian stock market by transforming the current tax legislation. An assessment of the factors restraining the development of the primary public offerings market is given. The problems of the existing methodology for the formation of the tax base when calculating income tax and personal income tax on transactions with exchange-traded financial assets are analysed. A methodology for providing tax benefits and tax incentives for investors is proposed. An assessment of the effectiveness of tax benefits using an individual investment account is given. A comparative analysis of the amount of taxes paid is carried out depending on the status of an investor and the type of securities. A detailed description of the methods for calculating taxes on stocks, bonds and futures is given. The results of the study consist in substantiating theoretical and practical provisions that allow us to develop an effective mechanism for taxing financial transactions in the securities market. The need is theoretically substantiated and the significance of state support in the stock market for citizens of the Russian Federation is determined. Mechanisms are proposed for cancelling separate accounting for several types of tax bases. The main problems are found and ways to improve the mechanism of taxation of transactions made on the Russian stock market are developed.

증권거래세 인하의 시장 유동성 및 변동성에 대한 효과 분석

정부는 투자자의 세부담을 완화하여 주식시장을 활성화하기 위해 2019년 6월부터 증권거래세를 인하하였다. 본 연구에서는 증권거래세 인하가 주식시장의 양적 유동성을 나타내는 거래활동(거래 대금, 거래량, 회전율), 질적 유동성, 그리고 변동성에 미친 영향을 살펴보는 것을 주요 목적으로 하고 있다. 이를 위해 2019년 3월부터 2019년 9월 동안의 KOSPI200지수와 NIKKEI225지수 구성 종목, 그리고 KOSDAQ과 JASDAQ 시장 각각의 시가총액 상위 200종목의 패널데이터를 Bloomberg를 이용하여 구축하였고, 개별 주식과 시간의 고정효과를 통제한 Difference in Difference (DID) 모형을 이용하여 2019년 6월 증권거래세 인하 효과에 대한 회귀분석을 수행하였다. 분석결과에 따르면, 증권거래세 인하 이후 KOSPI200 시장의 양적 유동성을 나타내는 거래대금, 거래량, 회전율 등의 거래활동은 통계적으로 유의미하게 변화하지 않는 것으로 나타났으나, 변동성은 통계적으로 유의미하게 증가한 것으로 나타났다. 다만, 변동성의 증가 정도는 매우 미미한 수준이었다. 한편, KOSDAQ 시장은 증권거래세 인하 이후 장기적으로 거래대금과 거래량이 각각 약 29%와 31% 증가하였고, 변동성 역시 통계적으로 유의미하게 증가하였다. 그러나 변동성의 증가 수준은 매우 미미한 것으로 나타났다. 강건성 검증을 위해서는 먼저 공표효과(Announcement effect)를 추가하여 분석하였고, 다음으로 분석기간을 변경하여 분석하였다. 모든 강건성 검증 분석결과는 본 분석의 추정 계수의 크기와 통계적 유의성과 유사함을 보여주었다. 본 논문의 이런 분석결과는 증권거래세가 거래활동을 증가시켜 시장의 가격발견기능의 효율성을 제고함으로써 변동성을 축소할 것이라는 유동성효과(Liquidity effect)를 지지하지 않는 것을 보여주고 있다.

OBJECT OF TAXATION UNDER DIGITALIZATION

The article investigates the problem of content change of the concept object of taxation in the Russian tax law on the path to digital economy. The purpose of the article is to analyze the provisions of the Russian tax legislation, international norms, as well as academic literature devoted to identification of certain new goods and phenomena as possible objects of taxation, thus updating the concept of the object of taxation itself. The development of information technologies generates the following unavoidable problems related to the object of taxation concept content, which allows reviving the discussion about the content of this tax and legal category: the impossibility to assess implementation operations as potential tax objects with the help of the classical triad product, work, service; recognition in certain situations (for example, in case of electronic money payment) as the object of taxation is not one, but a set of legal facts (cause of action); the need to establish the object of taxation through the so-called tax relationship between the object and the subject of taxation. In connection with the first problem, the author proposes to unambiguously define in the Tax Code the legal nature of transactions with digital products for tax purposes, treating them as a new type of service. The conclusion is based on the experience of international regulation and suggests supplementing the provisions of the Tax Code in terms of legal regulation of the concept taxation object as well as VAT taxation. The re-search of the second problem leads to the conclusion that it is necessary to clarify the rules of the Tax Code when the counterparties carry out taxable transactions, whose settlements are made with electronic money. In this situation, the object of taxation is not single, but suggests several legal facts-actions of the potential tax-payer. On the third problem the author raises the issues of identification of the taxpayer in case of certifying the taxable transaction by the digital signature analogue. Taking into account international experience, as well as national civil law regulations, it is considered necessary to include provisions on digital certificates and digital signatures in tax legislation.