It appears to be impossible to tax – or otherwise discourage – harmful speculative behaviour directly. One cannot impose a tax on just those who buy or sell stocks for purely speculative motives or as the result of theories of how other people will buy or sell stocks. The tax authorities cannot reliably distinguish them from other people who have “good” reason for buying and selling. Nor can tax authorities reliably distinguish those speculators who are helping keep prices close to their true investment value from those who are effectively moving them away.
Any government policy measures aimed discouraging speculative trading (such as transaction taxes, capital gains taxes with holding period requirements, the short-short rule, or margin requirements) are blunt measures which might work by reducing the number or the kind of people trying to make speculative profits. But while these policy measures might promote the cause intended by their framers, the might just possibly do the opposite of what is intended – moving prices even further from where efficient markets would put them. Even many years after they are instituted, one will not be able to say with any assurance that these measures were helpful…
…People spend considerable time and thought trying to predict what markets will do, and they act with purpose. Policy measures that discourage trade to reduce speculation will be greeted by investors as obstacles to get around in their efforts to maximise returns on their portfolio. These policy measures may lead investors to de-emphasise speculative considerations when they buy or sell, but the outcome is not assured.
Thursday, 10 December 2009
Robert Shiller vs transaction taxes
From Who’s Minding the Store in The Report of the Twentieth Century Fund Task Force on Market Speculation and Corporate Governance (1992)