Tax incidence in loan pricing

Ya Kang, Oliver Zhen Li and Yupeng Lin

Journal of Accounting and Economics, 2021, vol. 72, issue 1

Abstract: We investigate tax incidence reflected in the pricing of syndicated loans and argue that loan spread increases in bank income taxes of borrowers’ home states. We compare borrowers in states with differing bank tax rates and demonstrate the presence of tax incidence on borrowers with causality coming from bank taxes. Tax incidence on borrowers increases with local loan market concentration and pre-existing lending relationships. Further, a lack of tax deductibility of loan loss provisions enhances tax incidence. We conclude that bank income taxation, though specifically targeted at banks, is partially passed through to borrowers and increases their cost of debt.

Keywords: Tax incidence; Loan spread; State bank income tax (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:72:y:2021:i:1:s0165410121000331

DOI: 10.1016/j.jacceco.2021.101418

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