The Efficiency of Municipal Bond Tax Shields

Job market paper

Last revised: July 2025

U.S. states exempt residents from taxation on the interest income of local municipal bonds. I evaluate the efficiency of these tax shields. I use changes in millionaire taxes to calibrate an equilibrium model of the municipal bond market with state competition over tax shields. I show that state tax shields raise resident demand for local municipal bonds but impose negative externalities on other states and distort risk-sharing across municipal investors. Welfare could be significantly improved by repealing state tax shields. Reducing state tax shields by 1 percentage point raises aggregate welfare by about 0.06% of state GDP. 

Regulation and Competition in Global Banking

In preparation

U.S. policymakers depend on global banks to advance policy objectives, but aggressive enforcement can push activity beyond U.S. jurisdiction. Using a hand-collected dataset of 7,085 enforcement actions across 45 jurisdictions from 2011 to 2021, I show that U.S. regulators levy the largest penalties on global banks for similar violations. Difference-in-differences analyses around U.S. settlements reveal that penalized banks contract balance sheets, cross-border syndicated lending, and non-USD payment processing, while their borrowers substitute to Chinese lenders facing minimal U.S. enforcement. A multi-period model shows that this creates a time-inconsistency problem: strict enforcement raises near-term compliance but accelerates entry by less-regulated competitors. The optimal policy is non-monotonic: strict initially to delay entry, then lenient as competition intensifies. These findings highlight the limits of unilateral enforcement in global financial markets.

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