Corporate Taxation, Entrepreneurship and Financial Frictions [Draft] [Slides] 

An economic environment which encourages entrepreneurial activity among high ability individuals is crucial for economic prosperity. In this paper, prospective entrepreneurs face two main barriers to entry: (i) Wealth barrier and (ii) Distortionary government policies - this is modelled as corporate taxes. I simulate a model with occupational choices, calibrated to the UK economy to analyse the effect of a rise in corporate taxation. I show that a 6\% increase in UK corporate taxes significantly lowers the prospective profits of an entrepreneur, which discourages high ability, asset poor individuals from selecting into entrepreneurship. These displaced individuals join the labour force, exerting downward pressure on wage rates as a result of higher labour supply. Lower incomes in the economy affects economic activity, decreasing aggregate consumption and output. However, policies aimed at improving access to finance could potentially enable high ability, asset poor individuals transition into entrepreneurship which reverses the adverse effects of higher corporate taxes. 

CEPR Discussion Paper: The Causal Effect of the Darker Side of Financial Development (joint with Rodolphe Desbordes and Markus Eberhardt) [Paper] [Slides] 

We study the causal implications of financial deepening for economic development and financial crises, adopting a heterogeneous difference-in-difference framework. Using cross-country data for the past six decades we demonstrate that very high levels of finance, proxied by credit/GDP, are neither associated with lower long-run growth nor with higher short-run propensity of banking crises due to `credit booms gone bust' cycles or unfettered capital inflows. When we investigate `too much finance’ at intermediate levels of credit/GDP we find increased crisis propensity due to capital inflows and commodity price movements, but, again, no detrimental long-run growth effects for these (emerging) economies.

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