Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/304295 
Year of Publication: 
2023
Citation: 
[Journal:] International Tax and Public Finance [ISSN:] 1573-6970 [Volume:] 31 [Issue:] 5 [Publisher:] Springer Nature [Place:] Berlin [Year:] 2023 [Pages:] 1179-1203
Publisher: 
Springer Nature, Berlin
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.
Subjects: 
Complexity
Financial markets
Readability
Tax bills
JEL: 
G14
H20
H30
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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