TRANSACTION TAXES AND THE BEHAVIOR OF THE SWEDISH STOCK-MARKET

This paper studies the effects of transaction taxes on the behavior of Swedish equity returns during the 1980-1987 period. Sweden provides a n excellent laboratory-style setting for such a study, as taxes were i mposed for political purposes rather than to alter the behavior of the stock market. Volatility did not decline in response to the introduct ion of taxes although stock price levels and turnover did. Large propo rtions of trading activity migrated overseas to London when the tax ra te was increased to 2% in 1986.