Impact of tax changes on the risk premium of the WIG index

Paweł Radwański ()
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Paweł Radwański: Kozminski University

Bank i Kredyt, 2024, vol. 55, issue 3, 333-356

Abstract: The presented article provides an empirical analysis of changes in the risk premium of stocks on the Warsaw Stock Exchange in response to changes in tax rates. The analysis uses a structural VAR model, identified with sign restrictions. This method turns out simple to use and proves to be effective in overcoming the problem of predictability of fiscal policy, which is especially important in studies using variables from financial markets. The results show an increase in the risk premium following a sudden tax hike, accompanied only by a temporary reduction in GDP growth. Meanwhile, an anticipated tax hike seems to lower risk premia while being more harmful to GDP dynamics.

Keywords: fiscal policy; risk premium; VAR model; sign restrictions; behavioural finance (search for similar items in EconPapers)
JEL-codes: C32 C58 G12 G41 H30 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpbik:v:55:y:2024:i:3:p:333-356

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