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.
Acquah-Sarpong et al. (2026) studied this question.