[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: (1) distorting profits and investment; (2) reducing the cost of debt through a tax shield; and (3) 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.]

We introduce a present-value identity relating a firm’s market value to expected future markups, output growth, discount rates, and investments. Distinguishing current from expected markups reveals five empirical facts: (1) Expected markups account for half the rise in U.S. firm values since 1980. (2) The rise in aggregate expected markups reflects market-share reallocation toward high-expected-markup firms and within-firm increases. (3) Expected markups are linked to intangible investments. (4) They relate negatively to discount rates over time but (5) positively to abnormal returns across firms. Finally, variation in long-term expected markups is primarily associated with asset prices rather than current markups.

This paper examines how uncertainty affects corporate investment under varying degrees of asset redeployability. We develop new measures of asset redeployability by accounting for the usability of assets within and across industries. We identify plausibly exogenous shocks to economic uncertainty by using major economic and political events. We find that after an increase in uncertainty, firms using less redeployable capital reduce investment more. More redeployable assets exhibit higher recovery rates and are traded more actively in secondary markets. Overall, our results suggest that frictions in redeploying assets affect liquidation values and therefore make firms cautious about investment decisions under uncertainty.

This paper jointly examines the link between competition and expected returns in the time series and in the cross-section. To this end, we build a general equilibrium model where markups vary because of firm entry with oligopolistic competition. When concentration is high, markups are more sensitive to entry risk. We find that higher markups are associated with higher expected returns over time and across industries, in line with the data. The model can also quantitatively account for the persistent rise in aggregate risk premiums and macroeconomic volatility associated with the secular increase trend industry concentration since the mid-1980s.

We use a high-frequency identification approach to document that individual politicians affect asset prices. We exploit the regular flow of viewpoints contained in Congress members’ tweets. Supportive (critical) tweets increase (decrease) the stock prices of the targeted firm and the corresponding industry in minutes around the tweet. The bulk of the stock price effects is concentrated in the tweets revealing news about future legislative action. The effects are amplified around committee meeting days, especially when the tweet originates from committee members and influential politicians. Overall, we show that Congress members’ social media accounts are an important source of political news.

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: (1) distorting profits and investment; (2) reducing the cost of debt through a tax shield; and (3) 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. The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.