Tax Policy Expectations and Firm Behavior: Evidence from the 2016 U.S. Election and the Tax Cuts and Jobs Act
60 Pages Posted: 25 Feb 2021 Last revised: 10 Sep 2021
Date Written: September 2021
Using a dynamic text-based approach to measuring firms’ tax policy expectations, we show that two tax-changing events—namely, the 2016 U.S. election and the Tax Cuts and Jobs Act (TCJA)—affected these expectations in ways that vary substantially across firms and sometimes run counter to conventional wisdom. We further show that these event-induced tax policy expectations materially shape firm investment both before and in response to the TCJA. Our findings support recent analytical research calling empirical researchers to incorporate expectations when studying firm responses to tax policy. Furthermore, they suggest that tax policy can influence firm behavior through policy expectations.
Keywords: policy expectations, tax policy, tax reform, investment
JEL Classification: D72, G31, G38, H25
Suggested Citation: Suggested Citation