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"Read My Lips . . .": Does the Tax Rhetoric of Presidential Candidates Affect Security Prices?

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  • Ayers, Benjamin C
  • Cloyd, C Bryan
  • Robinson, John R

Abstract

We investigate whether security prices reflected the tax rhetoric of opposing candidates during the 1992 presidential campaign. We use data from the Iowa Political Stock Market to measure daily changes in the likelihood that the candidate advocating a tax rate increase, Bill Clinton, would be elected. We examine the relations between changes in election likelihood and (1) daily changes in the implicit tax rate on tax-exempt bonds and (2) daily abnormal returns on dividend-yielding stocks. We find that changes in the implicit tax rate on tax-exempt bonds are positively related to changes in the probability of Clinton's election. We also report that abnormal returns for dividend-yielding stocks are negatively associated with changes in the probability of Clinton's election. These findings suggest that security prices reflect the expected changes in tax policy implicit in the tax rhetoric of presidential candidates as the political fortunes of the candidates change throughout the campaign.

Suggested Citation

  • Ayers, Benjamin C & Cloyd, C Bryan & Robinson, John R, 2005. ""Read My Lips . . .": Does the Tax Rhetoric of Presidential Candidates Affect Security Prices?," Journal of Law and Economics, University of Chicago Press, vol. 48(1), pages 125-148, April.
    • Handle: RePEc:ucp:jlawec:y:2005:v:48:i:1:p:125-48
    DOI: 10.1086/425593
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    References listed on IDEAS

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    1. Michael C. Herron & James Lavin & Donald Cram & Jay Silver, 1999. "Measurement of Political Effects in the United States Economy: A Study of the 1992 Presidential Election," Economics and Politics, Wiley Blackwell, vol. 11(1), pages 51-81, March.
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    Cited by:

    1. Andrea Mattozzi, 2008. "Can we insure against political uncertainty? Evidence from the U.S. stock market," Public Choice, Springer, vol. 137(1), pages 43-55, October.
    2. Thomas Luke Spreen & Ed Gerrish, 2022. "Taxes and tax‐exempt bonds: A literature review," Journal of Economic Surveys, Wiley Blackwell, vol. 36(4), pages 767-808, September.
    3. Lorenz Kueng, 2014. "Tax News: The Response of Household Spending to Changes in Expected Taxes," NBER Working Papers 20437, National Bureau of Economic Research, Inc.
    4. Malani, Anup & Reif, Julian, 2015. "Interpreting pre-trends as anticipation: Impact on estimated treatment effects from tort reform," Journal of Public Economics, Elsevier, vol. 124(C), pages 1-17.
    5. Vishal P. Baloria & Kenneth J. Klassen, 2018. "Supporting Tax Policy Change Through Accounting Discretion: Evidence from the 2012 Elections," Management Science, INFORMS, vol. 64(10), pages 4893-4914, October.

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