The pass-through of corporate tax cuts to consumer loans: Evidence from the TCJA

Using data from TransUnion, a large U.S. credit bureau, we analyze whether and how cuts in bank income taxation are passed through to the interest rates and size of consumer loans. Exploiting the change in bank corporate income taxation from the Tax Cuts and Jobs Act and utilizing tax-exempt credit unions as a control group, we find that corporate tax cuts lead to lower interest rates for consumers obtaining auto loans from banks. We also find greater pass-through for individuals with higher credit quality. We develop a parsimonious model to identify the economic mechanisms influencing the pass-through of corporate tax cuts to interest rates. Our empirical tests reveal that pass-through declines with banks' market power and leverage, while we find only a limited role for selection in consumer credit markets.