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Do tax cuts ease liquidity constraints?
Acquah-Sarpong, Richard Chen, Yong Guo, David Lewin, Paul
Acquah-Sarpong, Richard
Chen, Yong
Guo, David
Lewin, Paul
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2026-05-20
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Article
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Keywords
Firm financial health,Kansas tax experiment,Liquidity constraint,Quasi-experimental analysis,State tax policy
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Citation
Acquah-Sarpong, R., Chen, Y., Guo, D. et al. Do tax cuts ease liquidity constraints?. Int Tax Public Finance (2026). https://doi.org/10.1007/s10797-026-09954-8
Abstract
This paper examines how the Kansas tax experiment, which eliminated state income taxes on pass-through entities between 2012 and 2017, affected firms’ debt payment behavior, a key indicator of liquidity constraint. Using establishment-level data from the National Establishment Time Series (NETS) and exploiting the geographic discontinuity in the Kansas City metropolitan area, we estimate the causal effect of the reform using a spatially anchored difference-in-differences framework. The results show that eliminating pass-through income led to a measurable, but temporary, improvement in the timeliness of debt payments. The average duration of delayed payments was reduced by one-third in the baseline model. The effects were heterogeneous and significant in small and non-publicly listed establishments.
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This is an open access article under the CC BY license.
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Springer Nature
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09275940