Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/272356 
Year of Publication: 
2022
Series/Report no.: 
Research Papers in Economics No. 5/22
Publisher: 
Universität Trier, Fachbereich IV - Volkswirtschaftslehre, Trier
Abstract: 
In this paper, we analyze whether the complexity of tax bills affects financial markets. Based on the Flesch-Kincaid grade level of the 32 tax bills identified by Romer and Romer (2010) in the period 1962-2003, we assess the relationship between tax bills' complexity and financial markets using an event study approach. 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 offsets the negative relationship for up to three days after the signing of a tax bill, but not thereafter. In the case of the stock market, we find similar offsetting evidence, but only for a part of the readability measures employed in this paper.
Subjects: 
Complexity
Event Study
Financial Markets
Readability
Tax Bills
JEL: 
G14
H20
H30
Document Type: 
Working Paper

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