Corporate Taxation, Entrepreneurship and Financial Frictions (solo-authored) [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. 

What’s the Melting Pot Worth? Multiculturalism and House Prices (joint with Hisham Farag, Christoph Gortz, Danny McGowan, Huyen Nguyen and Max Schroder) [Paper]

Featured on: Economics Observatory, BBC, NIESR

We estimate the premium or discount buyers pay for housing assets in a multicul-tural neighborhood. We exploit plausibly exogenous variation in British colonizationpatterns in Northern Ireland during the early 1600s which created neighborhoods of varying religious composition that persists until today. These religious groups areculturally distinct, but are observationally equivalent linguistically, in ethnicity and along socioeconomic dimensions. Buyers pay a 9.6% premium to purchase a housein a multicultural neighborhood. Multiculturalism transmits to real asset prices by increasing asset liquidity and housing demand. We develop a model that ties these insights together showing segregated neighbourhoods appeal to buyers similar to existing residents, whereas demand is higher in multicultural areas because a broader spectrum of society is willing to live there. 

Defining Current and Expected Financial Constraints using AI: Reinterpreting the Cash Flow Sensitivity of Cash [Paper]

We propose a new approach to identify firm-level financial constraints by applying artificial intelligence to text of 10-K filings by U.S. public firms from 1993 to 2021. Leveraging transformer-based natural language processing, our model captures contextual and semantic nuances often missed by traditional text classification techniques, enabling more accurate detection of financial constraints. A key contribution is to differentiate between constraints that affect firms presently and those anticipated in the future. These two types of constraints are associated with distinctly different financial profiles: while firms expecting future constraints tend to accumulate cash preemptively, currently constrained firms exhibit reduced liquidity and higher leverage. We show that only firms anticipating financial constraints exhibit significant cash flow sensitivity of cash, whereas currently constrained and unconstrained firms do not. This calls for a narrower interpretation of this widely used cash-based constraints measure, as it may conflate distinct firm types – unconstrained and currently constrained – and fail to capture all financially constrained firms. Our findings underscore the critical role of constraint timing in shaping corporate financial behaviour.

Publications

The Economic Effects of ‘Excessive’ Financial Development (joint with Rodolphe Desbordes and Markus Eberhardt) - Oxford Bulletin of Economics and Statistics, Forthcoming   [Paper] [Slides] 

Featured on VoxEU

We study the causal implications of high levels of financial deepening for economic devel-opment and banking crises in a panel of countries over the past seven decades. We adopt afactor-augmented heterogeneous difference-in-differences estimator and find, in contrast tothe existing literature, that very high levels of financial development do not lead to lowerlong-term economic growth or a higher likelihood of banking crises associated with ‘creditbooms gone bust’ cycles or excessive capital inflows. We submit this null result to a battery of robustness checks adopting alternative specifications, alternative aggregate data for households versus firms, and carrying out theory-driven heterogeneity analysis