Tax Policy Beliefs and Investment: Evidence from the 2016 U.S. Election and the Tax Cuts and Jobs Act

68 Pages Posted: 25 Feb 2021

See all articles by John Gallemore

John Gallemore

University of Chicago - Booth School of Business

Stephan Hollander

Tilburg University - Tilburg School of Economics and Management

Martin Jacob

WHU - Otto Beisheim School of Management

Xiang Zheng

Norwegian School of Economics (NHH)

Date Written: January 29, 2021

Abstract

We examine how beliefs about tax policy affect firms’ investment decisions. Exploiting the periods around the surprise election of Donald Trump, who campaigned heavily on tax reform, and the Tax Cuts and Jobs Act (TCJA), we find that expectations regarding tax policy have both first-moment (sentiment) and second-moment (uncertainty) effects on investment, which vary heterogeneously across events and firms. In particular, we document that tax policy sentiment (uncertainty) enhances (dampens) the change in investment around the passage of the TCJA, suggesting that these beliefs affect the ability of tax reforms to spur economic growth.

Keywords: tax policy, tax reform, policy beliefs, policy uncertainty, policy sentiment, investment

JEL Classification: D72, G31, G38, H25

Suggested Citation

Gallemore, John and Hollander, Stephan and Jacob, Martin and Zheng, Xiang, Tax Policy Beliefs and Investment: Evidence from the 2016 U.S. Election and the Tax Cuts and Jobs Act (January 29, 2021). Available at SSRN: https://ssrn.com/abstract=3775710 or http://dx.doi.org/10.2139/ssrn.3775710

John Gallemore (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Stephan Hollander

Tilburg University - Tilburg School of Economics and Management ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands
+31 13 466 8288 (Phone)
+31 13 466 8001 (Fax)

HOME PAGE: http://www.uvt.nl/people/s.hollander

Martin Jacob

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

Xiang Zheng

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

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