Rojo-Suárez, JavierAlonso-Conde, Ana B.2024-06-112024-06-112024-03Javier Rojo-Suárez, Ana B. Alonso-Conde, The role of shifts in the effective tax rate on the cost of equity, Research in Economics, Volume 78, Issue 1, 2024, Pages 61-72, ISSN 1090-9443, https://doi.org/10.1016/j.rie.2024.01.0051090-9443 (print)1090-9451 (online)https://hdl.handle.net/10115/33677We propose an asset pricing model conditional on the effective tax rate, which allows us to explicitly estimate the impact of shifts in corporate taxes on the expected returns of equities. We evaluate the model using Spanish macro and market data to estimate the time-varying average corporate tax rate and average returns of different anomaly portfolios. Our results show that changes in corporate taxation are strongly explanatory of future stock returns and, consequently, the cost of capital of firms. Furthermore, uncertainty about the future tax burden generally translates into higher expected returns, which results in a lower value of firmsengAttribution-NonCommercial-NoDerivatives 4.0 Internacionalhttp://creativecommons.org/licenses/by-nc-nd/4.0/Effective tax rateConditioning informationCAPMTax regulationRegulatory riskinfo:eu-repo/semantics/article10.1016/j.rie.2024.01.005info:eu-repo/semantics/openAccess