Assessing the economic impact of a commodities transaction tax

Arpita Pattanaik and Susan Thomas

The paper analyses the outcome of imposing transaction taxes on commodity derivatives in India from 1 July 2013. The outcome is measured as the change in market quality measures of traded volumes and other liquidity measures, market efficiency including basis and basis risk, and market volatility. Consistent with similar papers in the literature, there is a significant decrease in liquidity with traded volumes dropping by more than 50 percent. But there was little change in market volatility in the one-month period after the tax was imposed. The consistency of this with the international evidence about the effect on markets of a transaction tax, raises concerns about the lowered competitiveness of domestic markets with respect to their global counterparts which gain market share that the domestic markets lose out on.

Citation: Assessing the economic impact of a commodities transaction tax, Arpita Pattanaik and Susan Thomas, FRG working paper, September 2017.