Research

This paper documents that bankers’ labor market outside options shape risk-taking in the financial industry. We construct a bank-level measure based on hiring dynamics at connected financial institutions using granular employment histories and predetermined coworker links. Improved outside options predict faster growth in non-investment-grade lending, bank risk, and systemic risk. Individual loans shift toward riskier borrowers without compensating spreads and experience worse subsequent outcomes. Evidence from individually matched bankers shows that the risk response is concentrated among younger, more mobile bankers and that outside options reduce the separation penalty following poor loan performance. We also provide complementary evidence from investment advisers, where better outside options translate into more misconduct cases and weaker ensuing employment penalties. The results are consistent with outside options diluting the disciplining force of dismissals and provide a labor-market channel connecting procyclical outside options to credit supply.

Keywords: Financial Stability, Risk, Labor Markets, Outside Options

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Experimentally measuring the effect of teamwork formats on group investment performance.

The value-added tax (VAT) is commonly regarded to be non-distortionary due to its de jure trade neutrality. We analyze the effects of the VAT on trade in final goods in the European Union (EU) from 1988 to 2019, and we find that the VAT is de facto non-neutral. Using a gravity approach, we show that a one percentage point VAT increase implies a 5.45% reduction of foreign imports relative to internal trade. While institutional quality, EU accession, and preferential Common Market access cannot explain the over-proportionate reduction in imports, we provide evidence that foreign firm exit drives non-neutrality.

JEL Classification: F10, F14, H24

Keywords: Value-added taxation, trade neutrality, discrimination, border adjustment

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