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<p>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.</p>

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Do tax cuts ease liquidity constraints?

  • 期刊论文

  • 出版模式：

    开放获取

  • 发表日期：

    2026年5月15日

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  • Richard Acquah-Sarpong,
  • Yong Chen,
  • David Guo,
  • Paul Lewin

摘要

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.