Corporate Tax Changes and Credit Costs
We examine changes in the state corporate tax rate across the U.S. and their implications on the pricing and quantity of loans. We find that the cost of credit decreases (increases) by approximately ten (nine) basis points in response to a one percentage tax cut (hike). Our findings mainly originate from the demand side, with large and more profitable firms being able to mitigate the effects of the decrease in the corporate tax rate. The effect on the equilibrium loan amount is statistically and economically insignificant, consistent with a weak supply effect and an inelastic loan supply curve.
