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Corporate tax effects of economic policy uncertainty

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  • Wensheng Kang
  • Jing Wang

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.

Suggested Citation

  • Wensheng Kang & Jing Wang, 2021. "Corporate tax effects of economic policy uncertainty," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 2577-2600, April.
  • Handle: RePEc:bla:acctfi:v:61:y:2021:i:s1:p:2577-2600
    DOI: 10.1111/acfi.12677
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    References listed on IDEAS

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    3. Mingjun Deng & Xusheng Fang & Ziyan Tian & Wenbing Luo, 2022. "The Impact of Environmental Uncertainty on Corporate Innovation: Evidence from Chinese Listed Companies," Sustainability, MDPI, vol. 14(9), pages 1-19, April.
    4. Huizheng Liu & Jingyi Zhang & Qi Han & Wenshen Pan & Muhammad Afaq Haider Jafri, 2022. "Impact of Economic Policy Uncertainty on the Stability of Enterprises Embedded in a Global Value Chain," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 12(2), pages 1-3.
    5. Nguyen, Justin Hung, 2022. "How do labor adjustment costs affect corporate tax planning? Evidence from labor skills," International Review of Financial Analysis, Elsevier, vol. 83(C).
    6. Hui Zhou & Lin Xu, 2023. "Bank Digital Transformation and Enterprise Innovation—Evidence from China," Sustainability, MDPI, vol. 15(22), pages 1-25, November.
    7. Charemza, Wojciech & Makarova, Svetlana & Rybiński, Krzysztof, 2022. "Economic uncertainty and natural language processing; The case of Russia," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 546-562.
    8. Chen Wang & Jack Strauss & Lei Zheng, 2021. "High-Speed Railway Opening and Corporate Fraud," Sustainability, MDPI, vol. 13(23), pages 1-23, December.
    9. Haque, Tariq & Pham, Thu Phuong & Yang, Jiaxin, 2023. "Geopolitical risk, financial constraints, and tax avoidance," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).

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