Does tax policy affect credit spreads? Evidence from the US and UK

Kan Ji and Zongxin Qian

Journal of Macroeconomics, 2015, vol. 43, issue C, 318-329

Abstract: This paper studies how exogenous tax changes affect credit market conditions in the US and UK. Using both structural VAR and structural factor-augmented VAR (FAVAR) model, we find that tax-policy shocks have significant effects on the credit spread. Specifically, the credit spread responds first positively and then negatively to an exogenous tax increase in the two countries. Moreover, the impulse responses of the credit spread to tax-policy shocks do not always accord well with the impulse responses of the output. This indicates that there are channels of tax policy transmission to the credit spread other than through its impact on the business cycle.

Keywords: Exogenous tax change; Cedit spread; Narrative approach; FAVAR (search for similar items in EconPapers)
JEL-codes: E62 H30 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:43:y:2015:i:c:p:318-329

DOI: 10.1016/j.jmacro.2014.12.002

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