Working Papers

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

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 cutsCorporate tax cuts and interest rate reductions both stimulate investment, yet the interaction between these policies remains understudied. Using firm-level data, a novel tax treatment measure that captures taxable income dynamics, and narratively identified corporate tax policy shocks, we estimate that a one percentage point corporate tax cut reduces the investment response to monetary policy by approximately 11 percent. The effect is symmetric for monetary tightenings and expansions. A New Keynesian model with enforcement constraints accounts for this finding: higher taxes reduce after-tax internal funds, tightening borrowing constraints and amplifying investment responses to interest rate changes. The results suggest that central banks may require larger interest rate adjustments following corporate tax cuts..

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

The Monetary-Fiscal Policy Understanding Gap: Evidence from an Experiment (with Kurt E., Livingston J.) Submitted

Monetary and fiscal policies are key tools for macroeconomic stabilization, yet they differ markedly in how they are perceived by economic agents. Fiscal policy is easier for the public to understand because individuals interact with its consequences more directly, while monetary policy operates through more sophisticated and indirect mechanisms that are harder to grasp. Via an experiment, we show that people do in fact understand monetary policy less well than fiscal policy, but this understanding can be improved when subjects view educational tools provided by the Federal Reserve. These findings are consistent with information frictions arising from limited understanding of central bank instruments and transmission mechanisms.

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.

Work in Progress

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

Rank Reversals of Financial Constraints, Revisiting Financial Dependence Measures.