Essays on the taxation and regulation of financial markets
Massachusetts Institute of Technology. Dept. of Economics.
James M. Poterba.
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This thesis is a collection of three essays analyzing the economic effects of taxation, market structure, and the regulatory environment on financial markets, focusing in particular on financial intermediaries such as banks and mutual funds. The first chapter uses the unprecedented changes in the degree of competition in local banking markets that occurred between 1980 and 1994 to estimate the impact of market competition on the risk profile of commercial bank lending. There is evidence that increasing bank market power has been associated with reductions in the flow of bank capital to construction and land development loans, which are the highest-risk category of commercial bank loans. The magnitude of this effect is large: an increase in market concentration from the 25th to the 75th percentile is associated with a 20 percent drop in the share of bank lending going to construction loans. Robustness to a variety of control and instrumental variables strategies supports a causal interpretation of this empirical relationship. The second chapter focuses again on the role of market structure in commercial banking markets, this time focusing on the relationship between market structure and consumer borrowing. This chapter uses data from the 1983 Survey of Consumer Finances to test empirically the relationship between banking market concentration and households' self-reported measures of credit rationing and constraint. There is strong evidence that more concentrated markets have fewer constrained borrowers, a result consistent with the Petersen-Rajan (1995) model of credit markets. The third chapter, co-authored with Professor James Poterba, explores the relationship between the after-tax returns that taxable investors earn on equity mutual funds and the subsequent cash inflows to these funds.(cont.) Previous studies have documented that funds with high pretax returns attract greater inflows. This chapter presents evidence, based on a large sample of retail equity mutual funds over the period 1993 to 1999, that after-tax returns have more explanatory power than pretax returns in explaining inflows. In addition, funds with large overhangs of unrealized capital gains experience smaller inflows, all else equal, than funds without such unrealized gains.
Thesis (Ph.D.)--Massachusetts Institute of Technology, Dept. of Economics, 2002."June 2002."Includes bibliographical references.
DepartmentMassachusetts Institute of Technology. Dept. of Economics.; Massachusetts Institute of Technology. Department of Economics
Massachusetts Institute of Technology