UCLA

Evidence has shown that regulatory policies aimed at achieving financial stability disproportionally affect firms facing tighter borrowing constraints. However, little is known about the consequences of these policies in dollarized economies, where cheaper dollar financing plays a crucial role in relaxing small firms’ borrowing constraints. Furthermore, the impact of these policies on income distribution has remained unexplored in the literature. In Chapter 1, I propose a theoretical mechanism to understand the effects of a tax on foreign currency financial intermediation. I analyze the equilibrium of a credit market game in which currency mismatch acts as a means for relaxing small firms’ borrowing constraints. I show that a tax on dollar lending negatively affects the total debt of constrained (small) firms, while it only has compositional effects on total debt of unconstrained (large) firms. In Chapter 2, I study the implementation of a macroprudential FX tax by the Central Bank of Peru. I build a novel dataset that combines confidential data on the universe of loans granted by Peruvian banks to nontradable firms and a confidential dataset on the universe of all formally registered firms. Exploiting the heterogeneity in the strictness of the tax among banks, I provide causal evidence of the heterogeneous effects of this tax on firms of different sizes. I find that a 10% increase in bank exposure to the tax significantly increases disparities in the growth of total loans between small and large firms by 1.5 percentage points. When accounting for firms switching to soles financing from different banks, the effect on large firms financing is only compositional. Chapter 3 explores the links between macroprudential policies and labor income inequality. I develop a survey of two strands of the literature that have remained disconnected thus far: First, the literature that explores the heterogeneous effects of banking regulation and capital controls on firms of different sizes. And second, the literature that studies the drivers of the firm size wage puzzle, and the implications of firm demography on income inequality. I conjecture that, by disproportionally hurting small firms' financing and growth possibilities, macroprudential policies can contribute to increase labor income inequality.