Turnover tax, transaction cost and stock trading volume revisited: investigation of the Japanese case

Global financial turmoil in recent years has resulted in renewed interest in Stock Transaction Taxes (STT). Given that the existing literature on the <italic>quantitative</italic> impact of STT on turnover is limited and/or outdated, this article reinvestigates the issue, taking up the Japanese market reforms during the 1990s as an example. The analysis using an ordinary, fixed parameter model and Bayesian, variable parameter model finds that STT and, more generally, increased transaction cost significantly reduced trading volume. It is also found that the elasticity of turnover somewhat increased as the reforms were implemented. Finally, it is found that even in 2003 the elasticity was considerably smaller in the Japanese market than in European markets many years before.