This paper studies how exogenous tax changes affect credit market conditions in the US and UK. Using both structural VAR and structural factor-augmented VAR (FAVAR) model, we find that tax-policy shocks have significant effects on the credit spread. Specifically, the credit spread responds first positively and then negatively to an exogenous tax increase in the two countries. Moreover, the impulse responses of the credit spread to tax-policy shocks do not always accord well with the impulse resp