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Penny wise and pound foolish: capital gains tax and trading volume on the Zagreb Stock Exchange*
Tomislav Globan**
Tomislav Globan
Affiliation: Faculty of Economics & Business, University of Zagreb, Zagreb, Croatia
 0000-0001-5716-2113
Tihana Škrinjarić** 
Article | Year: 2020 | Pages: 299 - 329 | Volume: 44 | Issue: 3 Received: June 1, 2019 | Accepted: February 9, 2020 | Published online: September 1, 2020
|
FULL ARTICLE
FIGURES & DATA
REFERENCES
CROSSMARK POLICY
METRICS
LICENCING
PDF
Source: Authors’ estimations.
Source: Authors’ estimations.
Source: Authors’ estimations.
|
Day
|
Sign test
|
|
Normal
approximation
|
Exact
binomial
|
|
-10
|
1.17
|
(0.243)
|
28
|
(0.243)
|
|
-9
|
1.75*
|
(0.080)
|
30*
|
(0.079)
|
|
-8
|
2.63***
|
(0.009)
|
33***
|
(0.008)
|
|
-7
|
2.33**
|
(0.020)
|
32**
|
(0.019)
|
|
-6
|
2.33**
|
(0.020)
|
32**
|
(0.019)
|
|
-5
|
3.21***
|
(0.001)
|
35***
|
(0.001)
|
|
-4
|
2.63***
|
(0.009)
|
33***
|
(0.008)
|
|
-3
|
2.33**
|
(0.020)
|
32**
|
(0.019)
|
|
-2
|
2.63***
|
(0.009)
|
33***
|
(0.008)
|
|
-1
|
2.63***
|
(0.009)
|
33***
|
(0.008)
|
|
0
|
2.33**
|
(0.020)
|
32**
|
(0.019)
|
|
1
|
3.21***
|
(0.001)
|
35***
|
(0.001)
|
|
2
|
2.63***
|
(0.009)
|
33***
|
(0.008)
|
|
3
|
1.46
|
(0.145)
|
29
|
(0.144)
|
|
4
|
2.63***
|
(0.009)
|
33***
|
(0.008)
|
|
5
|
1.75*
|
(0.080)
|
30*
|
(0.079)
|
|
6
|
2.63***
|
(0.009)
|
33***
|
(0.008)
|
|
7
|
2.63***
|
(0.009)
|
33***
|
(0.008)
|
|
8
|
2.04**
|
(0.041)
|
31**
|
(0.040)
|
|
9
|
2.04**
|
(0.041)
|
31**
|
(0.040)
|
|
10
|
1.75*
|
(0.080)
|
30*
|
(0.079)
|
Note: ***p<0.01, **p<0.05, *p<0.1. p-values in parentheses. Source: Authors’ estimations.
Source: Authors’ estimations.
|
|
(1)
|
(2)
|
(3)
|
(4)
|
|
Polynomial order
|
p=4
|
p=3
|
p=2
|
p=1
|
|
Estimator
|
|
|
|
|
|
Conventional
|
-0.667**
|
-0.505**
|
-0.362*
|
-0.251
|
|
(0.320)
|
(0.249)
|
(0.219)
|
(0.169)
|
|
Bias-corrected
|
-0.719**
|
-0.536**
|
-0.411*
|
-0.309*
|
|
(0.320)
|
(0.249)
|
(0.219)
|
(0.169)
|
|
Robust std. errors
|
-0.719**
|
-0.536*
|
-0.411*
|
-0.309
|
|
(0.350)
|
(0.276)
|
(0.248)
|
(0.196)
|
|
Number of
obs.
|
|
|
|
|
|
Total
|
3096
|
3096
|
3096
|
3096
|
|
Left of the cut-off
|
1574
|
1574
|
1574
|
1574
|
|
Right of the cut-off
|
1522
|
1522
|
1522
|
1522
|
Note: ***p<0.01, **p<0.05, *p<0.1. Standard errors in parentheses. Source: Authors’ estimations.
|
|
(1)
|
(2)
|
(3)
|
(4)
|
(5)
|
(6)
|
|
|
Panel EGLS (cross-section weights)
|
Panel least squares (no weights)
|
|
Dependent variable (volume)
|
growth rate
|
log
|
in HRK
|
growth rate
|
log
|
in HRK
|
|
volume(-1)
|
-0.437***
(0.018)
|
0.443***
(0.024)
|
0.284***
(0.029)
|
-0.442***
(0.022)
|
0.444***
(0.024)
|
0.069*
(0.037)
|
|
tax
|
-0.446***
(0.097)
|
-0.458***
(0.113)
|
-27,961.4***
(8,468.0)
|
-0.497***
(0.094)
|
-0.489***
(0.113)
|
-26,445.0
(20,793.4)
|
|
pretax
|
0.164***
(0.038)
|
0.188***
(0.033)
|
5,987.7***
(2,244.3)
|
0.139***
(0.040)
|
0.160***
(0.033)
|
-32,576.2*
(17,940.9)
|
|
aftertax
|
-0.001
(0.053)
|
-0.078
(0.049)
|
232.0
(3,390.7)
|
0.009
(0.055)
|
-0.063
(0.049)
|
34,853.7
(36,126.9)
|
|
stdev
|
0.032***
(0.011)
|
0.004
(0.113)
|
313.56
(574.83)
|
0.018*
(0.011)
|
-0.006
(0.010)
|
-3,060.3
(5,914.17)
|
|
return
|
0.061***
(0.021)
|
0.049***
(0.019)
|
1,252.41
(813.42)
|
0.054**
(0.022)
|
0.039**
(0.018)
|
11,519.3
(7,654.1)
|
|
january
|
0.102*
(0.104)
|
0.073
(0.122)
|
12,781.6
(8,840.2)
|
0.144
(0.102)
|
0.104
(0.122)
|
-19,739.5
(23,000.9)
|
|
constant
|
-0.062
(0.047)
|
6.386***
(0.276)
|
220,956***
(8,692.0)
|
-0.063
(0.047)
|
6.395***
(0.281)
|
281,382***
(25,462.2)
|
|
R-squared
|
0.204
|
0.774
|
0.443
|
0.206
|
0.713
|
0.262
|
|
Adj. R-sq.
|
0.190
|
0.770
|
0.434
|
0.192
|
0.708
|
0.249
|
|
No. of observ.
|
3005
|
3019
|
3019
|
3005
|
3019
|
3019
|
|
Notes: ***p<0.01, **p<0.05, *p<0.1.
Standard errors in parentheses.
Source: authors’ estimations
|
Notes: ***p<0.01, **p<0.05, *p<0.1. Standard errors in parentheses. Source: authors’ estimations
|
VARIABLE (volume)
|
(1)
|
(2)
|
(3)
|
|
Croatia post-2015:M12
|
-0.663*
|
-0.233**
|
-0.270*
|
|
(0.343)
|
(0.110)
|
(0.161)
|
|
Stock market return
|
|
0.201*
|
0.356**
|
|
|
(0.111)
|
(0.147)
|
|
Stock market volatility
|
|
0.345***
|
0.407***
|
|
|
(0.090)
|
(0.123)
|
|
Interest rate
|
|
0.012
|
0.045
|
|
|
(0.026)
|
(0.035)
|
|
Growth in money supply
|
|
-0.021
|
-0.011
|
|
|
(0.042)
|
(0.052)
|
|
Exchange rate volatility
|
|
0.009
|
0.032
|
|
|
(0.069)
|
(0.091)
|
|
Constant
|
|
17.683***
|
17.513***
|
|
|
(0.099)
|
(0.141)
|
|
R-squared
|
0.110
|
0.277
|
0.218
|
Notes: Treated observations are trading volumes of Croatian stocks after the capital gains tax was introduced. Control group consists of Bulgaria, Czech Republic, Hungary, Poland, and Romania. Model (3) excludes the period after 2016:M12 to exclude the effect of the Agrokor crisis. Standard errors in parentheses. ***p<0.01, **p<0.05, *p<0.1 Source: authors’ estimations
Source: Authors’ estimations.
|
|
(7)
|
(8)
|
(9)
|
(10)
|
(11)
|
(12)
|
|
|
Panel EGLS (cross-section weights)
|
Panel least squares (no weights)
|
|
Dependent variable (volume)
|
growth rate
|
log
|
in HRK
|
growth rate
|
log
|
in HRK
|
|
Volume (-1)
|
-0.444***
(0.021)
|
0.372***
(0.025)
|
0.221***
(0.026)
|
-0.453***
(0.024)
|
0.377***
(0.027)
|
0.089*
(0.047)
|
|
tax
|
-0.490***
(0.054)
|
-0.451***
(0.061)
|
-32,218.6***
(5,794.3)
|
-0.554***
(0.028)
|
-0.510***
(0.059)
|
-34,607.8**
(16,564.0)
|
|
pretax
|
0.169***
(0.040)
|
0.182***
(0.033)
|
7,020.49**
(2,847.7)
|
0.150***
(0.041)
|
0.156***
(0.033)
|
-36,844.9*
(19,617.5)
|
|
aftertax
|
0.056
(0.067)
|
-0.028
(0.059)
|
2,165.3
(4,069.4)
|
0.082
(0.072)
|
0.037
(0.061)
|
60,357.4
(65,500.3)
|
|
stdev
|
0.095***
(0.017)
|
0.057***
(0.016)
|
3,699.25***
(1,175.51)
|
0.066***
(0.017)
|
0.032**
(0.016)
|
3,059.2
(13,840.0)
|
|
return
|
0.084***
(0.026)
|
0.078***
(0.022)
|
3,847.8***
(1,386.9)
|
0.058**
(0.024)
|
0.045**
(0.021)
|
32,604.4**
(13,406.9)
|
|
january
|
0.176***
(0.065)
|
0.101
(0.068)
|
13,091.4**
(6,238.3)
|
0.205***
(0.047)
|
0.122*
(0.066)
|
-13,823.8
(23,534.1)
|
|
constant
|
-0.239***
(0.058)
|
7.084***
(0.292)
|
23,7926***
(8,616.2)
|
-0.176***
(0.058)
|
7.069***
(0.314)
|
26,8943***
(44,069.2)
|
|
R-squared
|
0.229
|
0.797
|
0.487
|
0.226
|
0.717
|
0.268
|
|
Adj. R-squared
|
0.210
|
0.792
|
0.474
|
0.206
|
0.710
|
0.249
|
|
No. of observ.
|
2060
|
2065
|
2065
|
2060
|
2065
|
2065
|
Notes: ***p<0.01, **p<0.05, *p<0.1. Standard errors in parentheses. Source: Authors’ estimations.
|
Abbreviation
|
Full name
|
Abbreviation
|
Full name
|
|
ADPL
|
AD Plastik
|
KOEI
|
Končar
elektroindustrija
|
|
ADRS
|
Adris Grupa
|
KRAS
|
Kraš
|
|
ADRS2
|
Adris Grupa
|
LEDO
|
Ledo
|
|
ARNT
|
Arenahospitality
Group
|
LKPC
|
Luka Ploče
|
|
ATGR
|
Atlantic
Grupa
|
LRH
|
Liburnia Riviera Hoteli
|
|
ATLN
|
Excelsa
Nekretnine
|
MAIS
|
Maistra
|
|
ATPL
|
Atlanska
Plovidba
|
OPTE
|
Ot-Optima
Telekom
|
|
BD62
|
Badel 1862
|
PBZ
|
Privredna Banka Zagreb
|
|
DDJH
|
Đuro Đaković
Grupa
|
PLAG
|
Plava Laguna
|
|
DLKV
|
Dalekovod
|
PODR
|
Podravka
|
|
ERNT
|
Ericsson
Nikola Tesla
|
PTKM
|
Petrokemija
|
|
HIMR
|
Imeprial
Hotelijerstvo
|
RIVP
|
Valamar
Riviera
|
|
HMST
|
Hoteli Maestral
|
RIZO
|
Riz-Odašiljači
|
|
HT
|
Hrvatski
Telekom
|
SUNH
|
Sunčani Hvar
|
|
HTKP
|
Htp Korčula
|
THNK
|
Tehnika
|
|
HUPZ
|
Hup Zagreb
|
TPNG
|
Tankerska
Next Generation
|
|
IGH
|
Institut IGH
|
TUHO
|
Turisthotel
|
|
INA
|
Ina
|
ULPL
|
Uljanik
Plovidba
|
|
INGR
|
Ingra
|
VART
|
Varteks
|
|
IPKK
|
Termes Grupa
|
VDKT
|
Viadukt
|
|
JMNC
|
Jamnica
|
VERN
|
Genera
|
|
JNAF
|
Jadranski
Naftovod
|
ZABA
|
Zagrebačka
Banka
|
|
KODT
|
Končar transformatori
|
|
|
|
Stock
|
Volume – monthly series
|
Volume – daily series
|
|
In thousands
|
|
In thousands
|
|
T
|
Mean
|
Max
|
Min
|
Std Dev
|
T
|
Mean
|
Max
|
Min
|
Std Dev
|
|
ADPL
|
137
|
267.75
|
1,053.45
|
26.89
|
216.88
|
244
|
123.63
|
1,567.48
|
0.29
|
212.86
|
|
ADRS
|
137
|
338.98
|
4,990.79
|
10.13
|
479.49
|
210
|
483.92
|
12,017.97
|
0.52
|
1,164.48
|
|
ADRS2
|
137
|
1,040.93
|
8,546.29
|
191.83
|
990.20
|
267
|
1,230.45
|
10,257.70
|
6.02
|
1,385.18
|
|
ARNT
|
137
|
116.35
|
999.37
|
3,291.37
|
150.59
|
226
|
72.13
|
697.17
|
0.33
|
88.08
|
|
ATGR
|
137
|
415.06
|
2,704.10
|
43.49
|
413.64
|
261
|
359.35
|
12,294.00
|
0.82
|
1,061.10
|
|
ATLN
|
137
|
23.16
|
169.46
|
2,291.80
|
19.43
|
160
|
28.79
|
299.33
|
0.09
|
38.92
|
|
ATPL
|
137
|
1,182.02
|
11,737.10
|
34.81
|
2,234.49
|
255
|
101.23
|
856.16
|
0.57
|
140.10
|
|
BD62
|
137
|
32.95
|
334.56
|
2,168.67
|
50.05
|
112
|
29.53
|
452.56
|
0.01
|
71.99
|
|
DDJH
|
137
|
205.45
|
1,707.93
|
11.25
|
223.84
|
267
|
148.16
|
1,127.95
|
0.03
|
199.05
|
|
DLKV
|
137
|
658.26
|
3,806.65
|
11.16
|
921.73
|
259
|
145.05
|
1,884.55
|
1.13
|
213.69
|
|
ERNT
|
137
|
730.53
|
8,319.04
|
64.62
|
1,141.86
|
265
|
311.94
|
6,703.40
|
4.68
|
567.35
|
|
HIMR
|
132
|
82.77
|
2,641.55
|
1.65
|
250.76
|
143
|
95.56
|
7,418.40
|
0.40
|
534.32
|
|
HMST
|
118
|
41.36
|
404.98
|
1.35
|
62.07
|
135
|
50.84
|
907.15
|
0.21
|
96.95
|
|
HT
|
137
|
3,458.93
|
16,686.34
|
497.06
|
3,247.30
|
267
|
1,428.45
|
7,246.07
|
146.63
|
1,211.95
|
|
HTKP
|
137
|
322.17
|
4,367.23
|
1.40
|
644.38
|
58
|
14.84
|
229.30
|
0.06
|
32.62
|
|
HUPZ
|
133
|
2,590.00
|
25,767.94
|
107.36
|
4,021.53
|
122
|
87.22
|
2,408.00
|
1.72
|
249.64
|
|
IGH
|
137
|
663.28
|
6,975.49
|
3,531.91
|
1,405.50
|
143
|
19.49
|
175.94
|
0.09
|
29.89
|
|
INA
|
130
|
1,712.24
|
65,483.06
|
15.10
|
6,606.88
|
196
|
134.43
|
6,471.87
|
2.66
|
454.71
|
|
INGR
|
137
|
507.56
|
4,658.47
|
6,427.43
|
830.21
|
222
|
53.62
|
978.09
|
0.03
|
122.86
|
|
IPKK
|
136
|
63.42
|
830.74
|
5,908.33
|
130.48
|
59
|
27.36
|
1,088.35
|
0.08
|
109.47
|
|
JMNC
|
113
|
619.07
|
25,080.00
|
31.58
|
2,495.54
|
35
|
705.41
|
11,025.00
|
85.50
|
1,363.60
|
|
JNAF
|
137
|
127.84
|
1,044.36
|
10.13
|
161.74
|
88
|
191.39
|
4,783.23
|
3.35
|
591.25
|
|
KODT
|
137
|
75.43
|
1,616.32
|
7,158.87
|
149.30
|
77
|
172.85
|
14,400.00
|
1.11
|
1,247.46
|
|
KOEI
|
137
|
436.93
|
4,127.71
|
34.76
|
555.59
|
201
|
259.15
|
14,719.90
|
0.67
|
1,159.17
|
|
KRAS
|
137
|
118.70
|
473.32
|
19.35
|
84.14
|
253
|
152.63
|
1,164.25
|
2.30
|
202.21
|
|
LEDO
|
116
|
555.80
|
6,570.51
|
36.87
|
778.98
|
164
|
637.45
|
14,962.34
|
7.73
|
1,737.54
|
|
LKPC
|
137
|
188.41
|
2,882.99
|
5.45
|
321.29
|
189
|
119.98
|
8,994.87
|
0.62
|
624.03
|
|
LRH
|
137
|
94.50
|
608.64
|
5,691.94
|
108.09
|
142
|
91.51
|
744.68
|
3.27
|
123.77
|
|
MAIS
|
137
|
56.59
|
400.06
|
2,105.70
|
67.25
|
209
|
61.19
|
401.85
|
0.14
|
73.53
|
|
OPTE
|
137
|
65.74
|
692.44
|
2,104.67
|
115.49
|
230
|
60.61
|
1,561.05
|
0.00
|
129.44
|
|
PBZ
|
137
|
163.91
|
2,473.85
|
3,197.20
|
290.03
|
129
|
115.87
|
2,073.68
|
0.55
|
302.72
|
|
PLAG
|
136
|
109.20
|
2,284.17
|
7.78
|
220.60
|
106
|
118.58
|
1,327.39
|
4.05
|
211.61
|
|
PODR
|
137
|
494.29
|
3,759.51
|
49.03
|
492.02
|
254
|
543.90
|
5,650.90
|
0.91
|
911.76
|
|
PTKM
|
137
|
309.13
|
3,284.68
|
1.22
|
476.12
|
184
|
41.35
|
1,473.83
|
0.07
|
120.80
|
|
RIVP
|
135
|
555.08
|
3,211.42
|
5,263.15
|
645.71
|
267
|
809.06
|
4,414.41
|
42.88
|
792.66
|
|
RIZO
|
112
|
32.00
|
750.82
|
0.05
|
79.32
|
205
|
71.63
|
1,498.57
|
0.09
|
159.69
|
|
SUNH
|
108
|
21.18
|
174.86
|
1.28
|
29.35
|
116
|
30.04
|
815.57
|
0.02
|
87.09
|
|
THNK
|
137
|
124.46
|
932.35
|
1,319.17
|
180.72
|
118
|
28.04
|
201.06
|
0.29
|
35.43
|
|
TPNG
|
52
|
42.90
|
448.85
|
3,452.14
|
83.11
|
213
|
48.60
|
1,448.86
|
0.08
|
170.53
|
|
TUHO
|
137
|
90.55
|
898.46
|
6,566.67
|
108.85
|
84
|
189.01
|
3,906.28
|
2.41
|
493.60
|
|
ULPL
|
137
|
252.91
|
4,197.33
|
3,355.38
|
575.65
|
211
|
25.80
|
190.28
|
0.25
|
29.09
|
|
VART
|
136
|
51.60
|
2,077.46
|
0.90
|
186.44
|
226
|
25.18
|
179.42
|
0.02
|
29.78
|
|
VDKT
|
119
|
154.39
|
1,449.05
|
7,746.58
|
220.92
|
148
|
72.99
|
1,377.11
|
0.23
|
155.84
|
|
VERN
|
98
|
98.54
|
4,272.85
|
2,028.40
|
459.19
|
178
|
77.02
|
815.82
|
0.14
|
122.96
|
|
ZABA
|
137
|
344.38
|
3,533.72
|
25.12
|
439.85
|
223
|
178.38
|
2,063.88
|
0.04
|
303.27
|
Graph 1Market index value (right axis) and return series (left axis) on ZSE DISPLAY Graph
Graph 2Total trading volume on ZSE, in mil HRK DISPLAY Graph
Graph 3Yearly total trading volume on ZSE (left axis, in billions), percentage change (right axis, in %) DISPLAY Graph
Graph 4Abnormal volume (full line) with 95% CIs (dashed lines), classic inference DISPLAY Graph
Graph 5Abnormal volume (full line) with 95% CIs (dashed lines), bootstrap inference DISPLAY Graph
Graph 6Abnormal volume (full line) with 95% CIs (dashed lines), Wilcoxon inference DISPLAY Graph
Table 1Nonparametric tests results DISPLAY Table
Graph 7Regression function fits of polynomials of various orders from the regression discontinuity model (2013:M01 – 2019:M01) DISPLAY Graph
Table 2Sharp regression discontinuity estimated coefficients using local polynomial regression DISPLAY Table
Table 3Results of panel regression estimations (2013:M01-2019:M01) DISPLAY Table
Table 4Difference-in-Differences estimation results DISPLAY Table
Graph 8Regression function fits of polynomials of various orders from the regression discontinuity model (2013:M01 – 2016:M12) DISPLAY Graph
Table 5Results of panel regression estimations (2013:M01-2016:M12) DISPLAY Table
Table A1Stocks included in the study, abbreviations and full names DISPLAY Table
Table A2Descriptive statistics of trading volume series in monthly and daily frequencies, in HRK DISPLAY Table
** The authors want to thank the anonymous reviewers for insightful comments and suggestions.
1 The taxation of income from capital gains in Croatia was introduced not as a new tax form, but rather as part of the income tax reform contained in the changes in the Law on income tax (NN 115/16). However, for the sake of clarity, convenience, and compatibility with the existing literature, we will refer to the taxation of income from capital gains in Croatia as the “capital gains tax” throughout this paper.
2 Initially, the exemption was granted only to gains from the sales of shares owned for more than three years, but that period was subsequently cut to two years.
3 See, for example Jin (  2006) – it cannot be argued that increasing capital gains tax rates will slow down trad¬ing on a stock market; whereas Auten ( 1999) states that lower and middle income taxpayers are losers in the long run. Other literature on pros and cons with respect to the amount of tax rates, their introduction or sus¬pension can be found in Akindayomi ( 2013).
4 For a more detailed discussion on the link between legislation and the composition of investors on ZSE see Grubišić Seba ( 2017).
5 The “0” day remains 31 Dec 2015, as stocks bought from 1 Jan 2016 were subjected to taxation (if they were sold within 3 years after purchase). Thus, the zero day is the last “neutral” day when compared to +1 day which is now in Jan 2016.
6 Although it seems that on day two the zero value is included in the confidence intervals, the upper interval value is -0.004, which excludes the zero value.
7 Revenues from the income taxes are revenues of the local government.
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September, 2020
III/2020 |
