Working Papers
Who Labels and What’s Priced? Evidence from Third-Party ESG Assessments in the Municipal Bond Market (with Brian Gibbons and Mahdi Shahrabi) June 2025.
Abstract. We study the supply and pricing dynamics for ESG labels using a novel and unexpected third-party assessment of environmental, social, and governance (ESG) characteristics for over $1 trillion in municipal bonds. We show that most eligible bonds are issued without ESG labels and that local beliefs and issuance terms discourage labeling. Using a difference-in-differences design in combination with these assessments, we provide within-bond evidence that reducing ESG-related uncertainty increases investors’ willingness to pay. We find a 3-4 basis point premium for assessed bonds, even those with average ESG scores (i.e., ineligible for ESG labels)—which we call an assessment effect. The greenium for higher environmental or transparency scores is smaller but significant. These pricing effects are consistent across local characteristics, but are much larger for revenue bonds with material credit risk. Our evidence highlights the general relevance of ESG information in assessing credit risk and a mismatch between its supply and investor demand.
Power Banks: Do Tax Equity Investors Add Value to Renewable Power Projects? (with Sophie Shive) updated February 2025.
Abstract. We investigate distortions in performance and value stemming from the capital structure of renewable power plants. In 652 U.S. plants from 2006-2024, wind (solar) plants, for which tax equity returns depend (do not depend) on production quantity, produce 6-9% (no) closer to capacity until the tax equity investor’s exit. Tax-equity-financed wind plants have lower revenue per megawatt produced, negatively affecting common equity returns. Two natural experiments suggest that the greater capacity utilization is due to monitoring and contracting by tax equity investors and not the relaxing of financial constraints or ex-ante project selection. Tax equity’s distortionary effect is attenuated by the presence of back-levered debt, which is held by equally sophisticated investors and is secured by the sponsor’s equity position in the project.
Effects of International Tax Provisions on Domestic Labor Markets (with Eric Ohrn and Juan Carlos Suárez Serrato) February 2024. Revise and Resubmit at American Economic Review. [Brookings summary and policy brief]
Abstract. How does international taxation impact domestic workers? We study two fundamental elements of international tax systems by analyzing US provisions that isolate these elements. The first provision—the 1997 “Check-the-Box” regulations—lowered effective tax rates abroad by facilitating profit shifting from high tax foreign affiliates to tax havens. The second provision—the 2004 “repatriation holiday”—decreased tax costs of repatriating foreign earnings. Using a dynamic difference-in-differences framework, we estimate that local exposure to Check-the-Box significantly reduced domestic employment and earnings. This result implies that multinationals substitute domestic with foreign activity in response to lower effective tax rates abroad. We find the repatriation holiday had no effects on labor markets, indicating foreign cash holdings of US MNCs are not an important source of financing for domestic business activity. We conclude that policies that lower the foreign taxes of US MNCs are unlikely to benefit domestic workers.
Capital Investment and Labor Demand: Evidence from 21st Century Stimulus Policy (with Mark Curtis, Eric Ohrn, Kevin Roberts, and Juan Carlos Suárez Serrato), Updated December 2023. Revise and Resubmit at American Economic Review.
Abstract. We study how tax policies that lower the cost of capital impact investment and labor demand. Difference-in-differences estimates using confidential Census Data on manufacturing establishments show that tax policies increased both investment and employment, but did not stimulate wage or productivity growth. Using a structural model, we find that the primary effect of the policy was to increase the use of all inputs by lowering costs of production and that capital and production workers are complementary inputs in modern manufacturing. Our results show that tax policies that incentivize capital investment do not lead manufacturing plants to replace workers with machines.
Published and Forthcoming Papers
The Evolving Role of 21st Century Municipal Financial Advisors (with Baridhi Malakar), 2026. Public Budgeting & Finance Special Issue—The First Quarter of the 21st Century: The Evolution of the Municipal Securities Market and State and Local Finance.
Data and code for SEC Form MA filings
Abstract. We describe the evolution of the market for municipal financial advice since the year 2000 and present new empirical facts. Using SEC municipal advisor filings, we show that the number of operating advisors has decreased over time. We document that withdrawals—either exits, reorganizations, or mergers—are concentrated among smaller firms and those charging noncontingent fees. Using bond issuance data, we document that the use of advisors is increasing broadly over time and that advisor relationships are sticky. We relate the presence of advisors to several phenomena: changing structural complexity, changing disclosure complexity, and the timing of redemption behavior.
Gas, Guns, and Governments: Financial Costs of Anti-ESG Policies (with Ivan Ivanov), 2024, Journal of Finance, Forthcoming.
Abstract. We study how restricting intermediary contracting over ESG policies distorts financial market outcomes. In 2021 Texas prohibited municipalities from hiring banks with certain ESG policies, leading to the abrupt exit of five large municipal bond underwriters. Issuers that relied historically on the barred underwriters face higher uncertainty and borrowing costs after enactment of the laws, amounting to $300-$500 million in additional interest on $31.8 billion borrowed. We find that this effect arises from a decrease in underwriter competition, the destruction of existing relationship assets, and changes in placement style. We do not find any evidence in favor of capacity constraints.
Conflicts of Interest in Municipal Bond Advising and Underwriting, 2024, Review of Financial Studies, 37(12): 3,835-3,876.
Working paper version
Replication code archive
Abstract. When can financial advisor conflicts of interest generate worse outcomes for clients? A regulation following from Dodd-Frank prohibits municipal advisors from simultaneously acting as bond underwriters. Using a difference-in-differences approach and 20,051 bond auctions, I test whether limited advisor privileges affect financial advice and borrower outcomes. Financing costs of bonds with potential dual advisor-underwriters fall by 11.4 basis points after the advisor is no longer allowed to underwrite. The decline follows from increases in standardization, third-party certification, and auction participation, all of which are consistent with limiting the adverse selection that arises from advisors withholding information from the market.
Tax Advantages and Imperfect Competition in Auctions for Municipal Bonds (with Andrey Ordin, James W. Roberts, and Juan Carlos Suárez Serrato), 2023, Review of Economic Studies, 90(2): 815-851.
Working paper version
Replication code archive
Abstract. We study the interaction between tax advantages for municipal bonds and the market structure of auctions for these bonds. We show that this interaction can limit a bidder’s ability to extract information rents and is a crucial determinant of state and local governments’ borrowing costs. Reduced-form estimates show that increasing the tax advantage by 3 pp lowers mean borrowing costs by 9-10%. We estimate a structural auction model to measure markups and to illustrate and quantify how the interaction between tax policy and bidder strategic behavior determines the impact of tax advantages on municipal borrowing costs. We use the estimated model to evaluate the efficiency of Obama and Trump administration policies that limit the tax advantage for municipal bonds. Because reductions in the tax advantage inflate bidder markups and depress competition, the resulting increase in municipal borrowing costs more than offsets the tax savings to the government. Finally, we use the model to analyze a recent non-tax regulation that affects entry into municipal bond auctions.
Tax Policy and Local Labor Market Behavior (with Eric Ohrn and Juan Carlos Suárez Serrato), 2020, American Economic Review: Insights, 2 (1): 83-100.
NBER working paper version with additional results
Replication archive
Abstract. Since 2002, the US government has encouraged business investment using accelerated depreciation policies that significantly reduce investment costs. We provide the first in-depth analysis of this stimulus on employment and earnings. Our local labor markets approach exploits cross-industry variation in policy generosity interacted with county-level industry location data. This strategy identifies the partial equilibrium effects of accelerated depreciation. Places that experience larger decreases in investment costs see an increase in employment and earnings. In contrast, the policy does not have positive effects on earnings-per-worker. Overall, our findings suggest federal corporate tax policy has large effects on local labor markets.
How Elastic is the Demand for Tax Havens? Evidence from the US Possessions Corporations Tax Credit (with Juan Carlos Suárez Serrato), 2019, AEA Papers and Proceedings, 109 : 493-99.
Abstract. Why do some firms adopt certain tax havens and how sensitive is the demand for tax havens? We address these questions by studying how the repeal of Section 936 tax credits affected firms with affiliates in Puerto Rico. We first describe the characteristics of US multinationals that were exposed to Section 936. We then show that the market value of exposed firms decreased after losing access to Section 936, implying that firms could not perfectly substitute to other tax havens. Finally, we find that firms exposed to Section 936 did not respond by expanding their network of tax havens.
Hopefully Future Working Papers
Breaking Up: When Do Banking Relationships End? (with Marius Guenzel and Mahdi Shahrabi)
Local Price-Quality Trade-offs and Persistent Spatial Inequality (with Tim (Qian) Zhang)
Resting Papers
Tax Incidence in the Market for Medical Devices. EGAP Pre-registration ID 20180605AA.