Corporate taxes and economic inequality: A credit channel

Abstract

There is increasing consensus that reducing corporate tax rates contributes to the rising economic inequality observed in many Western economies. However, much less is known about the role of credit in this relationship. This column outlines a credit channel through which corporate taxation policy significantly affects income and wealth inequality. The key finding is that a cut in the corporate tax rates contributes to increased credit flows toward the relatively rich, despite the moderate increase in the probability of the poor being granted credit.