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

See all articles by John Gallemore

John Gallemore

University of North Carolina Kenan-Flagler Business School

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: September 2021

Abstract

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

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

John Gallemore (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

HOME PAGE: http://www.johngallemore.com

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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