The tax benefit of interest deductibility encourages debt financing, but regulatory and market constraints create dependency between bank leverage and asset risk. Using a large international sample of banks in this paper I find that banks located in high-tax countries have higher leverage and...

The Lucas Critique provides a cautionary background for the implementation of new policies. Rational agents tend to anticipate the consequences of new policies and may adopt their behavior in ways that affect the effectiveness of policies. New financial regulation, which is moving from a...

Using a large international firm-level data set, we estimate separate effects of host and parent country taxation on the location decisions of multinational firms. Both types of taxation are estimated to have a negative impact on the location of new foreign subsidiaries. In fact, the impact of...

Loan loss provisions in the euro area are negatively related to GDP growth, i.e., they are procyclical. Loan loss provisions tend to be more procyclical at larger and better capitalized banks. The procyclicality of loan loss provisions can explain about two-thirds of the variation of bank...