Analysis of the Impact of Tax Policy on the Dynamics of the Stock Market (the Case of the USA)

The academic community considers the tax policy primarily in terms of the impact on macroeconomic indicators, while the study of the stock market’s response to fiscal policy is usually limited to analyzing the influence of a particular law on a company performance or the stock market as a whole. However, studying the patterns of the stock market dynamics in response to similar changes in tax legislation, would firstly reveal the patterns of the stock market fluctuations due to the tax policy, and secondly, would allow us to evaluate the impact of tax changes on the real economy via changes in the securities market. In this regard, the purpose of the study was to assess the influence of the most ambitious post-war tax reforms in the United States, namely the reforms of 1986, 2003 and 2017 on the returns of the financial, industrial and information technology segments of the equity market. Focusing the sample frame to companies inside these industries contributed to the detailed consideration of the impact on the stock market, which can be explained by structural changes in the US economy. To achieve this goal, an event study method was applied, which was based on the construction of CAPM models. In this paper, the reactions of the considered industries to changes in tax legislation were compared; possible reasons for the recorded dynamics associated with the characteristics of each reform and with the evolution of the significance of a particular industry in the US economic development were highlighted; the interrelation of theories related to the research topic and empirical results was considered and the prospects for refinement and expansion of the study were outlined.