Corporate tax effects of economic policy uncertainty

Wensheng Kang and Jing Wang

Accounting and Finance, 2021, vol. 61, issue S1, 2577-2600

Abstract: We show consistent results that corporate cash tax burden within a year rises when economic policy uncertainty heightens using aggregate‐level data. Time‐varying tax effects of policy uncertainty are gradual and take time to induce corporate precautionary motives to engage in cash tax saving in the long run. Firm‐level analysis confirms that the tax effects of policy uncertainty are asymmetric and depend on underlying sources of monetary/fiscal policy uncertainty. The contemporaneous effect of monetary policy uncertainty on the cash effective tax rate is positive, whereas fiscal policy uncertainty shows a one‐year delayed negative effect on the cash effective tax rate.

Date: 2021
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https://doi.org/10.1111/acfi.12677

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