Do Taxes and Interest Rates Discipline Corporate Profits? A Post-Keynesian Nonparametric Test

This paper examines whether tax-rate and interest-rate changes discipline corporate profits after accounting for the laissez-faire market-price mechanism of profit growth. Future profits are modelled as a function of lagged profits, a nonparametric price-based profit-growth term, tax-rate changes, and interest-rate changes. The laissez-faire component is estimated using Nadaraya–Watson kernel regression. Using quarterly U.S. data from 2016Q3 to 2025Q4, the results do not reject the joint null hypothesis that tax-rate and interest-rate effects are zero. The evidence suggests that, over the sample period, corporate profits are weakly explained by conventional fiscal and monetary changes once market-price dynamics are taken into account.