Comment on “Securities Transaction Taxes and Financial Markets”

The paper “Securities Transaction Taxes and Financial Markets” by Karl Habermeier and Andrew Kirilenko is an excellent overview of the literature and key issues related to securities transaction taxes (hereafter referred to as STTs). The paper does a particularly good job of linking arguments from very different strands of literature—ranging from work on market microstructure to corporate finance to international macroeconomics. The authors also do a very nice job not only summarizing arguments made in previous work, but critically assessing this work and pointing out some of its shortcomings and weaknesses. Largely as a result of this critical assessment, the paper presents a very strong argument— that STTs have substantial costs and minimal benefits. This dominant opinion provides a coherent framework that connects many of the different topics covered in the paper. This strong viewpoint is also a refreshing improvement on many surveys that make an effort to be so evenly balanced that a reader can be left wondering what to conclude. Since I agree with the paper’s general conclusions, and since the paper does not develop any new models, datasets, or empirical results that usually provide substantial fodder for discussants, I take a slightly unusual approach in my comments. After a brief summary of the paper, instead of focusing on what the paper does do, my discussion focuses on a number of key aspects of STTs that are not covered in the paper. More specifically, I provide more substantiation for some of the arguments in favor of STTs (that are only eluded to briefly in the paper before