Economic impacts of federal reserve policies on taxation and corporate finance

Eli Kofi Avickson 1, *, Jacob Selasie Attieku 2 and Obinna Barnabas Onyenahazi 3

1 Department of Economics, Bowling Green State University, USA.
2 Department of Accounting, Illinois State University, USA.
3 Darla Moore School of Business, International MBA, University of South Carolina, USA.
 
Research Article
International Journal of Science and Research Archive, 2024, 13(02), 506–526.
Article DOI: 10.30574/ijsra.2024.13.2.2168
Publication history: 
Received on 30 September 2024; revised on 07 November 2024; accepted on 09 November 2024
 
Abstract: 
Federal Reserve policies play a pivotal role in shaping the U.S. economy, influencing not only macroeconomic stability but also the financial strategies and tax implications for corporations. Broadly, the Federal Reserve's use of monetary tools—such as interest rate adjustments, Quantitative Easing (QE), and inflation targeting—affects the economic environment within which businesses operate, impacting costs of capital, investment incentives, and overall corporate behaviour. Through mechanisms like lowering interest rates, the Federal Reserve reduces borrowing costs, which encourages companies to adjust their capital structures and debt levels, with significant implications for tax planning due to interest deductibility. QE, on the other hand, drives asset prices higher, promoting increased investment activity, stock buybacks, and changes in dividend policies that indirectly influence corporate taxation. This article examines the nuanced relationships between Federal Reserve decisions and corporate finance, analysing how shifts in policy impact tax revenue and how governments adapt tax policies to manage economic conditions such as inflation. By presenting case studies from the 2008 financial crisis and the COVID-19 pandemic, this analysis illustrates the practical effects of the Federal Reserve's actions on corporate financial decisions and the broader tax landscape. The article concludes by addressing the future of Federal Reserve policies in light of technological advances in finance and the adaptive strategies that corporate and regulatory bodies may adopt to navigate an increasingly dynamic economic environment.
 
Keywords: 
Federal Reserve policies; Corporate finance; Taxation strategies; QE; Interest rates; Economic impact
 
Full text article in PDF: 
 
Copyright information: 

Copyright © 2024 Author(s) retain the copyright of this article. This article is published under the terms of the Creative Commons Attribution Liscense 4.0