Endogenous capital depreciation and technology shocks

I examine the dynamic impact of capital maintenance on key aggregates through the depreciation rate. I find that two factors are crucial for the short-run effects of Total Factor Productivity and Investment-Specific shocks: (i) the marginal efficiency of maintenance and its connection with the rate of utilization, and (ii) the interplay between the intertemporal effect of maintenance and the substitution effect between maintenance and utilization. The latter is expressed by the relative size of the elasticity of maintenance to the Hicksian elasticity of complementarity between maintenance and utilization. These theoretical results suggest that to match the observed responses of the macroeconomic aggregates the sign of the cross derivative should be negative and that the relative size of the Hicksian elasticity should be smaller than the maintenance elasticity of marginal depreciation. Finally, the model suggests that the main macroeconomic aggregates react procyclically, with the exception of maintenance, the behavior of which depends on the type of the shock

Real effects of bank capital regulations: global evidence

We examine the effect of the full set of bank capital regulations (capital stringency) on loan growth, using bank-level data for a maximum of 125 countries over the period 1998-2011. Contrary to standard theoretical considerations, we find that overall capital stringency only has a weak negative effect on loan growth. In fact, this effect is completely offset if banks hold moderately high levels of capital. Interestingly, the components of capital stringency that have the strongest negative effect on loan growth are those related to the prevention of banks to use as capital borrowed funds and assets other than cash or government securities. In contrast, compliance with Basel guidelines in using Basel- and credit-risk weights has a much less potent effect on loan growth

Dynamic tax revenue buoyancy estimates for a panel of OECD countries. ESRI WP592, March 2018

In this paper we provide short- and long-run tax buoyancy estimates for a panel of OECD countries. Our results indicate that total tax revenue estimates are not different from unity, corporate income tax buoyancies exceed unity both in the long- and the short-run, while personal income tax buoyancies are smaller than unity; these results are robust to controlling for changes in the respective tax rates. Moreover, after taking into account the fluctuations of the business cycle, we observe that CIT estimates are larger during periods of contraction rather than periods of economic expansion; these results hold both for the whole panel and the Irish economy. Moreover, we examine the effects of using GNP instead of GDP as a base of economic activity for the Irish economy. Although the results are qualitatively the same, the differences need to be taken into account, especially form an economic policy point of view

Quantitative easing and household wealth inequality across the euro area

We examine how the unconventional monetary policies implemented by the ECB, namely negative deposit facility rate (NDFR) and quantitative easing (QE), affect asset portfolios and wealth distributions across European households. Using micro survey data from the Household Finance and Consumption Survey (HFCS), first we estimate wealth distributions across Euro Area countries. Second, we simulate how shocks in the price of assets, due to policy announcement and implementation, affect household’s capital gains depending on their level of wealth. We find that housing represents the largest share of households’ assets across all Euro Area countries and that wealth inequality increases from 2010 to 2014. Overall, unconventional monetary policies have a positive effect on households’ capital gains across all groups of the wealth distribution. However, households at the bottom end of the distribution benefit mostly from the NDFR, whereas households at the top end benefit mostly from QE policies.Check for editors, details of larger work or publicatio

Real effects of bank capital regulations: Global evidence

We examine the effect of the full set of bank capital regulations (capital stringency) on loan growth, using bank-level data for a maximum of 125 countries over the period 1998-2011. Contrary to standard theoretical considerations, we find that overall capital stringency only has a weak negative effect on loan growth. In fact, this effect is completely offset if banks hold moderately high levels of capital. Interestingly, the components of capital stringency that have the strongest negative effect on loan growth are those related to the prevention of banks to use as capital borrowed funds and assets other than cash or government securities. In contrast, compliance with Basel guidelines in using Basel- and credit-risk weights has a much less potent effect on loan growth

VAT revenue elasticities: an analytical approach. ESRI WP596, September 2018

In this paper we construct analytical estimates of the elasticity of VAT revenue with respect to underlying gross income and expenditure for the household sector in Ireland. The responsiveness of VAT revenue to changes in gross income steadily increased up to the late 2000s as marginal income tax rates fell. The introduction of the income levy and the doubling of the health levy resulted in a reduction in the VAT elasticity, as higher income tax rates also reduced the disposable income available for expenditure. This spill-over effect highlights the importance of judging the broader implications of tax policy. It also suggests that policymakers during any subsequent fiscal crisis should be cautious when choosing the composition of tax adjustments, as there is a clear trade-off to be made. The VAT revenue elasticity is lower for Ireland than estimates for the UK, New Zealand and Australia, possibly reflecting the greater progressivity of the Irish income tax system compared to other OECD countries

Investment Tax Incentives and Their Big Time-to-Build Fiscal Multiplier

This paper studies how investment tax incentives stimulate output in a medium-scale DSGE model, which allows for a variety of fiscal funding mechanisms. We find that the horizon following a positive shock in investment tax incentives is crucial. The shock is highly expansionary in the long run with the relevant fiscal multiplier substantially exceeding 1, but this effect only becomes visible after two to three years. Our analysis indicates that a rise in the marginal product of labor and the demand for labor trigger this expansion, which is an effect that partial equilibrium studies ignore. Our analysis also contributes to the time-to-build profile of the fiscal multiplier. The results suggest that investment tax incentives are even more effective when nominal wages adjust faster

Enforcement of banking regulation and the cost of borrowing

We show that borrowing firms benefit substantially from important enforcement actions issued on U.S. banks for safety and soundness reasons. Using hand-collected data on such actions from the main three U.S. regulators and syndicated loan deals over the years 1997–2014, we find that enforcement actions decrease the total cost of borrowing by approximately 22 basis points (or $4.6 million interest for the average loan). We attribute our finding to a competition-reputation effect that works over and above the lower risk of punished banks post-enforcement and survives in a number of sensitivity tests. We also find that this effect persists for approximately four years post-enforcement.36 month embargo - ACUpdate issue date during checkdate report - A

Education and Credit: A Matthew Effect

Using a unique corporate loans dataset for entrepreneurs with small and microenterprises, this paper examines how educational attainment affects bank credit decisions and subsequent individual and firm outcomes. Our results highlight a “Matthew Effect,” where an initial advantage is self-amplifying. We find that entrepreneurs who obtain university education are more likely to apply for credit, and receive higher credit scores, and better lending terms. Via this credit channel, such entrepreneurs have significantly better future firm outcomes compared to those without a university education. Furthermore, we find a key role for investments in innovation, intangible assets, and lower within-firm pay inequality