Don’t go on holiday in August! Market reaction to an unexpected windfall tax on banks

Antonio De Vito, Livia Pancotto, Salvatore Perdichizzi and Alessio Reghezza ()

Economics Letters, 2023, vol. 233, issue C

Abstract: Using an event study approach, this paper investigates the stock market reaction to the unexpected announcement of a windfall tax on banks’ extra profits. We show that investors negatively perceive the introduction of the tax, with more pronounced reactions for banks expected to be more highly burdened. This evidence is corroborated when we investigate the cross-sectional determinants of banks’ returns and cumulative abnormal returns. Overall, the results suggest that investors negatively price excess profits taxes and contribute to our understanding of how stock markets respond to tax policy changes.

Keywords: Windfall tax; Excess profits tax; Rent tax; Banks; Event studies; Market reaction (search for similar items in EconPapers)
JEL-codes: G14 G21 H22 H25 H26 M41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:233:y:2023:i:c:s0165176523004330

DOI: 10.1016/j.econlet.2023.111407

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