A0375
Title: The role of corporate tax policy on monetary effectiveness: A quasi-experimental approach
Authors: Ezgi Kurt - Bentley University (United States) [presenting]
Abstract: The first empirical evidence on how corporate tax policy affects monetary policy outcomes is documented. Using exogenous marginal tax reforms in the US, we show that the average impact of monetary policy differs based on the tax treatments firms receive. Specifically, we find that monetary policy is more effective on employment and investment for firms facing tax increases relative to those with stable statutory taxes. Moreover, we document that monetary policy is least effective when firms face marginal tax cuts. The empirical findings are rationalized using a New Keynesian model featuring capital and corporate income taxes. Both theoretical model and empirical findings suggest that tax policy could lead to considerable variation in monetary policy outcomes.
