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
Date Written: January 29, 2021
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: Suggested Citation