Using tax policy to curb speculative short-term trading

Abstract

This article addresses the question of the desirability of a tax on transactions in the securities industry. Firms were induced to pay excessive attention to short-term returns rather than long-term concerns. There are four circumstances under which governments frequently resort to selective taxes: the commodity being taxed has a highly inelastic demand, so that the tax has little distortionary effect; the commodity being taxed is a luxury good, consumed largely by the very rich; the commodity being taxed associated with certain benefits provided by the government gasoline and airport taxes; and the commodity being taxed that has some socially undesirable characteristics.