Working Papers

Corporate Tax Reforms and The Investment Channel of Monetary Policy. (with Ezgi Kurt) 

This paper presents the first empirical evidence on how corporate tax policy affects the effectiveness of monetary policy on investment. By examining exogenous marginal tax reforms in the US, and accounting for the dynamic nature of taxable income and the forward-looking behavior of investment, we find that monetary policy is more effective at stimulating investment when firms face tax increases, compared to when their taxes are stable. Conversely, monetary policy is least effective on investment when firms experience marginal tax cuts.

Presented at: Midwest Economics Association 2024, UNH Macro Brownbag. 

Contract Enforcement and Young Firm Capital Structure: A Global Perspective. (with Ina Simonovska) 

We study young firms' short- and long-term leverage dynamics across developed and developing countries to infer the severity of firm-level financial constraints and their implications for firm growth. Using balance-sheet data for private firms, we document that stronger contract enforcement raises long-term leverage for young firms more so than for mature ones. We build a model where heterogeneous firms borrow funds in a limited contract-enforcement environment, and show that age is a more robust signal of constraint status than size. We confirm two testable predictions in the data: (i) short-term leverage increases while long-term leverage decreases over the early life cycle of firms; and (ii) the rise in short-term leverage persists longer in less developed economies. Guided by the model, we quantify firm-level financial constraints across countries of different levels of development using short- and long-leverage data.

Presented at: NBER SI IFM 2025, Second Annual Jackson Hole IFM Conference, Johns Hopkins SAIS, ICP World Bank, Vienna Global Macroeconomics Workshop at Vancouver, Midwest Macro Kansas, GIFT conference at Tilburg,  SED Winter Meeting 2024, Bentley Applied Macroeconomics Workshop  2024, UNH seminar series.

Cross Country Patterns of Relative Misallocation in Services and Manufacturing: Theory and Evidence. (with Ina Simonovska) 

While we have some evidence that misallocation is higher in services than in manufacturing, these findings have been produced in the context of intra-country comparison. Is misallocation consistently higher in the service sector? Is there a pattern of the severity of misallocation in the service sector? We answer the later question by presenting a novel fact: misallocation in the service sector is relatively more severe at lower levels of development. To rationalize the previous fact, we present a model of industry dynamics, endogenous borrowing constraints, and financial structure. We use the model to quantify the TFP losses implied by the patterns of premature deindustrialization.

Ex-Post Efficient Risk Sharing with Private Information and Limited Commitment. (with Nicolas Caramp) 

Sovereigns might find that state-contingent bonds have attractive risk-sharing properties, however the fact that the national authorities are reporting the states limits the implementable risk-sharing arrangements. For example, Argentina issued state-contingent bonds (bonds whose payments were tied to GDP or inflation) and then misreported inflation. In this sense, the natural environment to study the design of state-contingent bonds is an economy with private information and limited commitment. The literature has characterized the optimal contract in this setting. A common feature of the resulting contract is that it is ex-post inefficient (i.e., there exists another contract that generates an ex-post Pareto improvement). In this paper we propose a notion of limited commitment involving renegotiation proofness. To capture the idea that mutually beneficial trades should occur between parties constantly interacting in markets, we solve the optimal contract under asymmetric information, limited commitment of the agent, and limited commitment of the principal. Specifically, we assume that the principal cannot commit not to renegotiate. While this breaks the traditional revelation principle, we show how to implement the general version of the revelation principle under limited commitment in our setting. We propose a decentralization a la Alvarez Jerman (2000) and study the role of constraints coming from limited enforcement and adverse selection.

Work in Progress

Rank Reversals of Financial Constraints, Revisiting Financial Dependence Measures.