City Research Online

Abstract

This paper examines how Spain’s 2021 financial transaction tax (FTT), a 0.2% levy on secondary equity trades of large-cap firms, affects key dimensions of equity market quality. Employing a triangulated causal identification strategy that combines differencein-differences (DiD), synthetic DiD, and regression discontinuity design, we find compelling evidence that the FTT reduced volatility without harming liquidity. Spain offers a policy-relevant case given its modern equity market structure, characterized by mature algorithmic trading and rising retail investor participation. Our findings suggest that a modest, well-calibrated FTT can curb speculative short-term equity trading without impairing and potentially improving market functioning in advanced trading environments. This study informs policy debates by shedding light on when FTTs can promote financial stability while generating public revenue.

Publication Type:	Article
Additional Information:	© 2026, Elsevier. This is the accepted manuscript of an article published by Elsevier. Please refer to the publisher’s terms and conditions for information on re-use.
Publisher Keywords:	Financial transaction tax; Tobin tax; Volatility; Liquidity; Algorithmic trading; Equity markets
Subjects:	H Social Sciences > HG Finance H Social Sciences > HJ Public Finance
Departments:	Bayes Business School Bayes Business School > Faculty of Finance
SWORD Depositor:	Symplectic Administrator

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