Essays in financial economics

This thesis consists of three essays in financial economics. In the first chapter, I test for the existence of a new channel through which politicians can exchange favors with campaign donors: different payment periods in procurement contracts. I explore an electoral reform that bans corporate contributions. The reform partially breaks down the relationship between donors and politicians: firms that donate in the previous election can no longer commit to contributing with the same intensity in the next election. Using a within-firm difference-in-differences identification strategy, I find that the payment period to firms that donate to the coalition government increases by five days after the reform. I study the heterogeneity of this effect and find that it is larger in municipalities with low liquidity and for contracts allocated through competitive procurement methods. The results provide an explanation – preferential treatment after the bidding stage – for the persistent evidence of quid pro quo even in competitive auctions. Moreover, the results point to the importance of designing rules that curb discretion over payment periods. In the second chapter, co-authored with Jesús Gorrín and José Morales, we study the trade effects of increases in violence following the Mexican Drug War. A focus on exports allows us to control for demand shocks. We compare exports of the same product to the same country of destination, but produced in municipalities with different exposure to violence after a close electoral outcome. We show that municipalities that are exogenously exposed to the Drug War experience a 45% decrease in export growth on the intensive margin. Large exporters suffer larger effects, along with exports of more complex, capital-intensive, and skill-intensive products. Finally, we provide evidence consistent with violence increasing marginal exporting costs. In the the third chapter, I study tax and redistributive policies in a dynastic model that features borrowing constraints, occupational choice and preferences for bequests. Borrowing constraints arise from moral hazard. In the absence of taxes, individuals that start with different levels of wealth converge to different steady-states, and poverty traps may occur. The introduction of inheritance taxation creates a trade-off: on the one hand, they tighten borrowing constraints, and thus they deplete the short-run aggregate productivity of the economy; on the other hand, they can be an instrument to fight poverty traps, wealth inequality and, in some cases, maximize long-run aggregate productivity