The Efficiency of Municipal Bond Tax Shields

Job market paper

Last revised: February 2026

U.S. states exempt residents from taxation on the interest income of local municipal bonds. I use staggered changes in top-bracket state income taxes to estimate the effects of tax policy on municipal bond demand and prices. Higher state taxes increase demand for in-state municipal bonds, compress local bond yield spreads, and reduce cross-state bond holdings, consistent with a contraction in interstate risk sharing. I embed the resulting elasticities in a parsimonious equilibrium model with strategic state tax setting to quantify the cross-state externalities of state tax shields. In this framework, tax shields segment municipal bond markets, distort risk sharing, and shift tax bases across states. Counterfactual reforms indicate that reducing tax shields by 1 percentage point increases aggregate welfare by roughly 0.06% of state GDP.

The Limits of Unilateral Financial Enforcement 

Last revised: May 2026

The centrality of the U.S. dollar allows the U.S. to impose sanctions and project influence abroad, but unilateral enforcement may shift financial activity outside U.S. jurisdiction. Using 7,085 enforcement actions against global banks during 2011–2022, I document that the U.S. levies 89% of all monetary penalties across 45 jurisdictions. U.S. settlements raise funding costs, contract cross-border intermediation, and partially reallocate credit toward lenders outside U.S. oversight, even as borrowers remain anchored to dollar-denominated credit. A model disciplined by observed switching patterns implies a roughly 15-year half-life for U.S. jurisdictional reach at the current enforcement intensity.

Previously circulated as "Regulation and Competition in Global Banking."

Asset Purchases and Demand in Municipal Bonds

Last revised: April 2025

This paper shows that state tax policy significantly affects the transmission of asset purchase programs into municipal bond prices. I establish two key parameters that create segmentation and shape bond yields: a state's top income tax rate and the wealth concentration among its richest households. Using a difference-in-differences design around the Federal Reserve's April 2020 announcement of the Municipal Liquidity Facility, I find that yields of eligible issuers in more segmented markets decline by up to 21% more than those in less segmented markets. A calibrated model explains this through preferred habitat demand, and an event study of Indiana's 2012 tax reform further confirms the role of tax-induced segmentation.

The Long Shadow of Public Interventions in the Financial Sector

With Giovanni Dell'Ariccia, Deniz Igan, Paolo Mauro, Alexander Tieman, and Aleksandra Zdzienicka

The IMF Economic Review, Volume 70, Pages 212–250, 2022 

We take stock of the costs of government interventions in the financial sector over the period 2007–2017 and track the assets still under government control. We build a new bank-level dataset on interventions and holding divestitures covering 1,114 financial institutions in 37 countries. At end-2017, few countries had fully divested their financial sector holdings. On average, public holdings were divested faster in more capitalized, profitable, and liquid banks. They remained higher in countries where private investment and credit growth grew slower, financial access, depth, efficiency, and competition were worse, and financial stability improved less.

Media coverage: Bloomberg, WSJ

Corporate Transactions in Hard-to-Value Stocks

With Itzhak Ben-David, Byungwook Kim, and Darren Roulstone

The Review of Corporate Finance Studies, Volume 12, Issue 3, Pages 539–580, 2023

Hard-to-value stocks provide opportunities for managers to exploit their informational advantage through trading on their firms’ and their own personal accounts. In contrast to the prediction that such transactions reflect private information about future events, they are contrarian and heavily depend on past returns. Corporate transactions in hard-to-value stocks outperform those in easy-to-value stocks in the early part of our sample, but this difference disappears after 2002, coinciding with a general decline in the profitability of stock market anomalies. Our evidence is consistent with managers’ perception of mispricing, rather than private information, being a key motivator of their transactions.

Media coverage: RCFS blog