Essays on Financial Intermediation and Taxation

Abstract

This dissertation consists of three chapters. In the first chapter, I study how the liquidity provision from securitization accounts for aggregate fluctuations in mortgage credit in the United States. For this, I develop a dynamic general equilibrium model of banking with an endogenous securitization market. With income and default rate shocks as observed in the data, the model replicates two-thirds of the aggregate contraction of mortgage credit to households observed during the Great Recession. Moreover, I find that the liquidity dry up arising from the collapse of the securitization market accounted for thirty percent of the contraction of mortgage credit. In the second chapter, I study how information frictions in the securitization market can amplify the response of mortgage credit supply to house price shocks. For this I model securitization as an optimal contracting problem between investors and banks. I find that adverse selection amplifies by a factor of two the response of a bank's loan originations to house price shocks. The model is informative of how information problems in the secondary market can induce large fluctuations in the supply of credit. In the third chapter (joint with Jose Casco), we document that the average corporate income tax rate has declined by approximately forty percent from 1980 to 2016 in the United States. At the same time, we observe that most states have gradually shifted towards imposing a sales-only apportionment weight on multi-state firms. We ask whether these patterns are consistent with states competing in setting their corporate tax policy. Empirically, we find evidence of strategic interaction in setting tax policies between neighboring states. Theoretically, we show that moving towards a sales-only apportionment scheme is consistent with the prediction of a dynamic general equilibrium model of tax competition that incorporates the Formula Apportionment rule.