Abstract

http://ssrn.com/abstract=1863956
 
 

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Fiscal Policies and Asset Prices


Mariano Massimiliano Croce


University of North Carolina Kenan-Flagler Business School

Howard Kung


University of British Columbia

Thien Tung Nguyen


Ohio State University (OSU) - Department of Finance

Lukas Schmid


Duke University - The Fuqua School of Business

February 15, 2012

Review of Financial Studies, Forthcoming

Abstract:     
The surge in public debt triggered by the financial crisis has raised uncertainty about future tax pressure and economic activity. We examine the asset pricing effects of fiscal policies in a production-based general equilibrium model in which taxation affects corporate decisions by: i) distorting profits and investment; ii) reducing the cost of debt through a tax shield; and iii) depressing productivity growth. In settings with recursive preferences, these three tax-based channels generate sizable risk premia making tax uncertainty a first order concern. We document further that corporate tax smoothing can substantially alter the effects of public expenditure shocks.

Number of Pages in PDF File: 47

Keywords: cost of equity, corporate tax uncertainty, tax smoothing

JEL Classification: G12, E62

Accepted Paper Series


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Date posted: June 15, 2011 ; Last revised: October 3, 2012

Suggested Citation

Croce, Mariano Massimiliano and Kung, Howard and Nguyen, Thien Tung and Schmid, Lukas, Fiscal Policies and Asset Prices (February 15, 2012). Review of Financial Studies, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1863956 or http://dx.doi.org/10.2139/ssrn.1863956

Contact Information

Mariano Massimiliano Croce (Contact Author)
University of North Carolina Kenan-Flagler Business School ( email )
Chapel Hill, NC 27599-3490
HOME PAGE: http://homepages.nyu.edu/~mmc287

Howard Kung
University of British Columbia ( email )
2053 Main Mall
Vancouver, British Columbia BC V6T 1Z4
Canada
Thien Tung Nguyen
Ohio State University (OSU) - Department of Finance ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States
Lukas Schmid
Duke University - The Fuqua School of Business ( email )
Durham, NC 27708-0120
United States
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