Our spatial general equilibrium model evaluates the impact of stamp duty reforms on social welfare through two channels: the direct positive impact on housing market outcomes and the indirect boost to national productivity due to better labor allocation. Analyzing detailed spatial data from Australia, we find that reducing stamp duties generates welfare gains of 3.57%, with the productivity channel accounting for 95% of these gains. This highlights the significant benefits of stamp duty reforms beyond the housing market.

I use a new publicly available industry-year panel dataset capturing within-industry productivity dispersion to examine the relationship between various measures of industry-level leverage, a common measure of financial constraints, and industry-level productivity dispersion, a common measure of misallocation. Increases in short-term leverage are associated with increases in TFPR dispersion. Likewise, increased short-term leverage is associated with a persistent increase in labor productivity dispersion. Higher long-term leverage is generally associated with higher dispersion in TFPR. However, there is little correlation between long-term leverage and labor productivity dispersion. On the asset side of the balance sheet, the accumulation of inventories is associated with lower dispersion. I interpret these results in a model featuring sources of finance with different time horizons and nonuniform financial constraints across inputs.

This paper examines the impact of financially constrained intermediate inputs on within-industry total factor productivity loss. Utilizing exogenous tax reforms in China as a natural experiment, our difference-in-difference analysis reveals that reduced tax burdens lead to increased firm-level intermediate inputs, particularly among financially constrained firms. We incorporate financially constrained intermediate inputs into a partial equilibrium model of firm dynamics. Our calibration suggests that financially constrained intermediate inputs play a quantitatively more important role in accounting for misallocation than financially constrained capital. The presence of financially constrained intermediate inputs introduces a downward bias in the measurement of value-added productivity, especially for firms in the top decile of gross-output productivity. As a result, the average “efficient” levels of capital and labor for the top decile firms in the standard Hsieh and Klenow (2009) exercise are lower than what is truly efficient.

We study the value of the political connections of directors on Chinese boards. We build a new dataset that measures connections of directors to members of the Politburo via past school ties, and find that private firms with politically connected directors in the boardroom get on average about 16% higher subsidies over sales per firm (7 million yuan). Connected state-owned enterprises (SOEs) access debt at 11% cheaper cost, which translates into average savings of close to 32 million yuan per firm in lower interest payments. We find that the value of the political connections persisted after the anti-corruption campaign (ACC) of 2012. It became weaker for the cost of debt in SOEs, but stronger for subsidies to private firms. We argue that the value of connections in the private sector increased after the ACC because they became a less risky alternative to corruption. We also show that connected firms do not perform better.

A quantitative framework of firm dynamics is developed where the size of the informal sector is determined by financial constraints and the burden of taxation. Improving access to credit for formal sector firms increases aggregate total factor productivity and output while reducing the size of the informal sector. Introducing size-dependent taxes reduces the gains from financial development as they incentivize firms to produce at a relatively limited scale. The aggregate effects of eliminating formal sector registration costs are positive but modest relative to previous theoretical models and the gains generated by financial development, and consistent with empirical evidence based on micro-level data.

In a dynamic stochastic general equilibrium model with monopolistic competition and flexible prices, we assume that producers must estimate their demand elasticities, which leads to heterogeneous expectations because of idiosyncratic shocks. I argue that these expectations shape firms' perceptions of relative prices, market shares, and individual demand elasticities, thereby distorting their price-setting and production. This model concludes that discarding the conventional assumption of known and exogenous demand elasticity generates business cycle fluctuations indistinguishable from those produced by traditional productivity shocks.

We propose a sectoral–shift theory of aggregate factor productivity for a class of multisector economies with AK technologies and a constant production possibilities frontier. Loans are partly secured by collateral and partly based on reputation. We find that both the growth rate and total factor productivity (TFP) respond to random and persistent endogenous fluctuations in the sectoral distribution of physical capital, which, in turn, responds to reversible exogenous shifts in relative sector productivities. Endogenous debt limits on secured and unsecured loans slow down capital reallocation, preventing the equalization of risk-adjusted equity yields across sectors. Economywide factor productivity and the aggregate growth rate are both negatively correlated with the dispersion of sectoral rates of return, sectoral TFP, and sectoral growth rates. We also find highly volatile limit cycles in economies with small amounts of collateral.