As part of the Brown Bag Lunch series, the International Economics Department at the Graduate Institute is pleased to invite you to a public talk given by Hayley Pallan, PhD student in International Economics. She will present her research work entitled

Do Investors Care about Consumption Taxes?  Evidence from Advanced and Emerging Economies

Abstract: This paper investigates the response of investors to tax policy announcements. Using a new dataset of daily equity returns and day-specific tax policy announcements across 20 countries between 1990 and 2014, I find that investors care about consumption taxes. The effect of VAT announcements is heterogeneous by country groups and sectors. In advanced economies, the average effect of an announcement for a VAT increase is statistically insignificant, while in emerging economies the average effect is positive and statistically significant. I explore the role of base vs. rate changes, macro-conditions, as well as sector elasticities in explaining the heterogeneous response of equity returns to tax announcements. Tax base changes (rather than tax rate changes) explain the positive reaction in emerging markets, periods of systemic crisis amplify the positive effect of tax increases in all country groups, and sector elasticities explain the heterogeneous response at the firm level in advanced economies. This paper contributes to the literature on tax policy identification, emphasizing the heterogeneous response to tax policy announcements and providing explanations for counterintuitive responses.