The effects of tax policy on financial markets: G3 evidence | Zendy

Arin K. Peren | Zendy; Mamun Abdullah | Zendy; Purushothman Nanda | Zendy

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The effects of tax policy on financial markets: G3 evidence

Author(s) -

Arin K. Peren,

Mamun Abdullah,

Purushothman Nanda

Publication year - 2009

Publication title -

review of financial economics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.347

H-Index - 41

eISSN - 1873-5924

pISSN - 1058-3300

DOI - 10.1016/j.rfe.2008.05.001

Subject(s) - economics , monetary economics , equity (law) , tax policy , stock market , stock (firearms) , financial market , bond , tax reform , finance , law , public economics , biology , engineering , horse , mechanical engineering , paleontology , political science

We investigate the effects of various tax policy innovations on stock market returns. By using a vector autoregressive model that controls for the mutual causality between fiscal policy and financial market performance, we test whether financial markets serve as a transmission mechanism for tax policy innovations. Our findings indicate that indirect taxes have a larger effect on market returns than do labor taxes. Further, corporate tax innovations do not have any statistically significant effect on stock returns. We consider that this finding is a result of a firm's ability to switch between equity financing and bond financing.

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