Using two instruments of perceived probabilities of income tax changes, I show that the implications of tax news shocks on the economy and asset prices are asymmetric across the political partisan cycle. Tax shocks cause high wealth states during Republican administrations. To compensate for...

Announcing a large fiscal stimulus may signal the government’s pessimism about the severity of a recession to the private sector, impairing the stabilizing effects of the policy. Using a theoretical model, we show that these signaling effects occur when the stimulus exceeds expectations and...