It’s hard to cleanly identify the effects of corporate taxes.

Most work focuses on profits, investment, or jobs (Zwick & Mahon QJE ’17; Ljungqvist & Smolyansky JF ’18; Fuest et al. AER ’18).

In our new paper — “The Real and Financial Effects of Local Corporate Tax Increases” (Banco de Portugal WP 11/2025) — we use a setting that lets us go further.

We capture the entire transmission chain: from liquidity & credit to real activity, productivity, and even spatial allocation of firms.

📄 bportugal.pt/sites/default/… The setting: Portugal’s municipalities set their own corporate surtax.

That gives us local variation in tax rates that is:
- exogenous to individual firms
- staggered across time and space
- perfect for a difference-in-differences + local projections strategy.

🔹 Universe of firm-level financial statements
🔹 Linked to the credit registry (loan-level, bank–firm exposures)

This allows us to simultaneously observe:
how firms adjust liquidity & borrowing
how banks reprice risk & absorb defaults.

"Monetary actions affect economic conditions ONLY after a lag that is both long and variable" Milton Friedman, JPE, 1961

🚨New paper: we find that this statement is qualified: ❌ONLY

We find important short lags before monetary policy effects fully unravel at long lags 🧵 We use novel consumption (bank transactions), sales (VAT) and employment (social security) at very high-frequency (daily) in Spain, together with high-frequency monetary policy shock identification for the Euro Area, to revisit Friedman's dictum. 2/N