Filippo Taddei

International Capital Flows and Credit Market Imperfections: A Tale of Two Frictions

The nancial crisis of 2007-08 has underscored the importance of adverse selection in nancial markets. This friction has been mostly neglected by macroeconomic models of nancial imperfections, however, which have focused almost exclusively on the eects of limited pledgeability. In this paper, we ll this gap by developing a standard growth model with adverse selection. Our main results are that, by fostering unproductive investment, adverse selection: (i) leads to an increase in the economy’s equilibrium interest rate, and; (ii) it generates a negative wedge between the marginal return to investment and the equilibrium interest rate. Under nancial integration, we show how this translates into excessive capital inows and endogenous cycles. We also extend our model to the more general case in which adverse selection and limited pledgeability coexist. We conclude that both frictions complement one another and show that limited pledgeability exacerbates the eects of adverse selection.

Liquidity and the Allocation of Credit: Business Cycle, Government Debt and Financial Arrangements

I analyze the equilibrium level of liquidity and its relevance for the allocation of credit, when the notion of liquidity is related to private information. The general equilibrium analysis yields the following main implications: firstly, it provides an explanation of procyclical liquidity even in the presence of security endogeneity; secondly, it illustrates how government debt, by providing liquidity to an otherwise illiquid private market, encourages rather than “crowds out” private investment; thirdly, it offers a well defined notion of securities’ value, the liquidity of which is endogenously enhanced by the arrangements within financial markets. The approach jointly analyzes the three factors crucial to liquidity: (1) its level is endogenously determined through equilibrium pricing while entrepreneurs choose which security to issue; (2) the introduction of government debt has the two-fold effect of directly providing liquidity to entrepreneurs and indirectly influencing the type of securities they issue in equilibrium; (3) financial markets develop arrangements to allow the beneficial employment of securities, not only physical assets, as collateral (financial pyramiding).

Age Before Beauty? Productivity and Work vs. Seniority and Early Retirement

We show how the age pro le of earnings, retirement rules and retirement behavior are tightly linked through the general equilibrium of the economy. Generous Social Security bene ts nanced by large Social Security taxes discourage human capital accumulation. In Social Security systems where Social Security bene ts prioritize redistribution less productive workers with lower levels of human capital tend to retire earlier. These out ows of workers from the labor force tend to generate wage pro les that are monotonically increasing over age and labor markets that display larger seniority premia. This paper theoretically rationalizes the links between retirement rules and the wage structures over the life cycle and uses data on European countries to show how social security taxes, the age pro le of earnings, and retirement behavior are related.

Bequest taxes, donations, and house prices

Abstract This paper is an empirical investigation into the effect of bequest taxes (estate or inheritance tax, in the US) and inter vivos real estate donations taxes (gift tax, in the US) on (i) house prices, (ii) house donations, and (iii) market transactions. In a simple model with intergenerational altruism, a lower tax rate unambiguously increases (i) and has an ambiguous effect on (ii) and (iii). We test these predictions using an original and unique data set containing information on sales, donations and real estate prices in 13 large Italian cities between 1993 and 2004. This period spans a major reform that first decreased and then abolished the inter vivos real estate donations tax and bequest tax in Italy. We find that the reform is associated with cumulative real appreciation of about 5% between 2001 and 2004, an increase in donations, and a decrease in market transactions over the same period.

Credit, Collateral and Financial Arrangements

The existence of collateral requirements to the exchange of securities in general reduces the efficiency of competitive equilibria. The general equilibrium analysis is presented in a world where reputation plays no role, and the lender always expects a future payment equal to the minimum between the original promise and the future market value of provided collateral. In this context, I show that collateral requirements result in two distinct problems for efficiency. I argue that two financial arrangements, tranching and financial pyramiding, arise in developed capital markets in response to the challenges posed by collateral requirements. If these arrangements are sufficiently developed, then the pareto efficiency of competitive equilibria is restored.