N°23-29: Corporate Taxes and Economic Inequality: A Credit Channel

Corporate taxation can have redistributive effects on income and wealth. We hypothesize and empirically establish such an effect working via bank credit. Using a unique sample of majority owned firms that apply for credit, we show that after a decrease in corporate tax rates the relatively poor get easier access to credit. However, this policy also considerably increases loan amounts and decreases loan spreads for the relatively rich. Ultimately, reducing the corporate tax rate predominantly increases the future income and wealth of relatively rich business owners.