Too complex to digest? Federal tax bills and their processing in US financial markets

Hamza Bennani and Matthias Neuenkirch

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Abstract: In this paper, we analyze whether the textual complexity of tax bills affects financial markets. Based on the Flesch-Kincaid grade level of the 32 tax bills identified by Romer (Am Econ Rev 100(3):763–801, 2010)in the period 1962–2003, we assess the relationship between tax bills' textual complexity and financial markets in various windows around the signing of a bill. Our results show a negative (positive) and significant relationship between the present value of tax bills and changes in the 10-year government bond yields (S &P 500 returns). The magnitude of this relationship increases over time, suggesting that market participants underreact at first and need a couple of days to digest the information contained in the tax bills. This delay can be explained by the textual characteristics of the bills in the case of the 10-year yields as a lower readability partly counteracts the negative relationship for up to three days after the signing of a tax bill. In the case of the stock market, we find similar evidence, but only for a part of the readability measures employed in this paper.

Keywords: Complexity; Financial Markets; Readability; Tax Bills (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-pbe
Note: View the original document on HAL open archive server: https://hal.science/hal-04202559v1
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Published in International Tax and Public Finance, 2023, ⟨10.1007/s10797-023-09795-9⟩

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Related works:
Journal Article: Too complex to digest? Federal tax bills and their processing in US financial markets (2024)
Working Paper: Too Complex to Digest? Federal Tax Bills and Their Processing in US Financial Markets (2022)
Working Paper: Too Complex to Digest ? Federal Tax Bills and Their Processing in US Financial Markets (2022)
Working Paper: Too Complex to Digest? Federal Tax Bills and Their Processing in US Financial Markets (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04202559

DOI: 10.1007/s10797-023-09795-9

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