paper assesses the impact that a widely-based Securities Transaction Tax (STT)
could have on the likelihood of systemic financial crises. We apply the
methodology developed by Demirgüç-Kunt and Detragiache (1998) [IMF Staff Papers 45 (1)] to a panel
dataset of 34 OECD countries for the sample 1973−2012, using a measure of a
country’s average bid-ask spread in financial markets as a proxy for the likely
effect of a STT on transactions costs. Our results indicate that the
establishment of a STT could sizeably increase the risk of financial crises.