Working Paper: NBER ID: w27470
Authors: Alexander F. Wagner; Richard J. Zeckhauser; Alexandre Ziegler
Abstract: The Tax Cut and Jobs Act (TCJA) slashed corporations’ median effective tax rates from 31.7% to 20.8%. Nevertheless, 15% of firms experienced an increase. One fifth of firms recorded nonrecurring tax costs or benefits exceeding 3% of total assets. Proxies that existing studies employ to assess the TCJA’s impacts account for just half of actual impacts. Stock prices impounded those proxies during the legislative process. Total impacts were impounded the following year, once firms published their financials. These results indicate that investors find it hard to predict even large and immediate changes to company cash flows due to unfamiliar events.
Keywords: Tax Cuts and Jobs Act; corporate tax rates; effective tax rates; financial consequences; stock market anticipation
JEL Codes: G12; G14; H25; O24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| TCJA (K34) | reduction in corporate tax rates (H32) |
| TCJA (K34) | decrease in ETRs (R49) |
| TCJA (K34) | nonrecurring tax impacts (H24) |
| recurring tax impacts (H22) | nonrecurring tax impacts (H24) |
| firm-specific factors (L20) | variations in impacts of TCJA (H29) |
| firm size (L25) | tax reductions (H23) |