Corporate tax changes and credit costs

Yota Deli, Manthos D. Delis, Iftekhar Hasan, Panagiotis N. Politsidis and Anthony Saunders

No 202221, Working Papers from School of Economics, University College Dublin

Abstract: We examine changes in the corporate tax rate across the U.S. and their implications on the pricing and quantity of loans. We find an asymmetric effect on the cost of credit: loan spreads decrease by approximately 5.9 basis points in response to a one percentage tax cut, but they are insensitive to corporate tax increases. Primarily, a debt restructuring effect (working via firm’s leverage) and, secondarily, a credit supply effect (working via bank market power and bank capital) drive the easing effect of tax cuts on equilibrium loan pricing, while the effect on the equilibrium quantity of loans is insignificant.

Keywords: Corporate taxation; Cost of credit; Syndicated loans; Loan demand; Loan supply (search for similar items in EconPapers)
JEL-codes: F31 F33 F34 G21 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2022-07
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