We provide a theoretical model linking firm characteristics and expected returns. The key ingredient of our model is technological shocks embodied in new capital (IST shocks), which affect the profitability of new investments. Firms' exposure to IST shocks is endogenously determined by the...

Researchers considering levels and trends in the resources available to the middle class traditionally measure the pre-tax cash income of either tax units or households. In this paper, we demonstrate that this choice carries significant implications for assessing income trends. Focusing on tax...

We propose a model consistent with two observations. First, the tax rates adopted by different countries are generally uncorrelated with their growth performance. Second, countries that drastically reduce private incentives to invest, severely hurt their growth performance. In our model, the...

Collateral constraints widely used in models of financial crises feature a pecuniary externality: Agents do not internalize how borrowing decisions taken in “good times” affect collateral prices during a crisis. We show that agents in a competitive equilibrium borrow more than a financial...

I examine Ronald Coase's criticism of standard regulatory and tax policies to address environmental externalities. I elaborate some of Coase's key points and discuss opportunities for Coasean exchange as an alternative mitigation approach. Regulation, tax, and Coasean exchange, such as through...

We derive conditions under which cost-increasing measures - consistent with either regulatory constraints or fully expropriated taxes - can increase the profits of all agents active within a common-pool resource. This somewhat counterintuitive result is possible regardless of whether price is...

Investors can access foreign diversification opportunities through either foreign portfolio investment (FPI) or foreign direct investment (FDI). By combining data on US outbound FPI and FDI, this paper analyzes whether the composition of US outbound capital flows reflect efforts to bypass home...

We present evidence that changes in tax laws passed in the 1980s, culminating with the Tax Reform Act of 1986, had a first order effect on observed merger and acquisition activity in the US. We also present evidence of increased reliance on certain institutional arrangements (unit management...

The paper studies the effects of tax policy on venture capital activity. Entrepreneurs pursue a single high risk project each but have no own resources. Financiers provide equity finance. They must structure the entrepreneur's profit share and base salary to assure their incentives for full...

Tax rates have fluctuated considerably since federal income taxes were introduced in the United States in 1913. This paper analyzes the effects of stochastic taxation on asset prices in a dynamic general equilibrium model. Stochastic taxation affects the after-tax returns of both risky and safe...