Andrea Modena

We study the interaction between bank payouts and creditors' rollover decisions in a dynamic model where a public liquidity facility can temporarily replace funding withdrawn by non-rolling creditors. We solve the model in closed form and characterize how shareholders' payout policy and creditors' rollover behavior are jointly determined in equilibrium and vary with the reliability of liquidity support. A more reliable facility encourages debt rollover but also induces earlier payouts and smaller buffers, partially offsetting its stabilizing effect. We show that dividend restrictions counteract this feedback, reducing rollover risk and increasing firm value. Their effectiveness is nonmonotonic in the facility reliability, while the optimal restriction becomes less stringent as reliability increases. When recapitalization is endogenous, however, sufficiently tight restrictions eliminate incentives to recapitalize, limiting how aggressively payouts can be restricted.

This paper examines how state‐dependent dividend restrictions (taxes and bans) and capital requirements influence a bank's capital buffer accumulation and risk‐taking decisions. In the model, the bank distributes dividends and issues costly equity to maximise shareholder value, while its loans generate stochastic income under time‐varying macroeconomic conditions. We solve the bank's stochastic control problem and derive its capital buffer distribution in closed form. Binding dividend restrictions in bad macroeconomic states increase capital retention but shift dividend payouts toward good states, reducing shareholder value. This reduction disincentivizes equity issuance following adverse income shocks. Dividend shifting and recapitalisation disincentives increase the bank's capital buffer dispersion in the long run. Coordinating dividend restrictions with counter‐cyclical capital requirements mitigates value losses in bad states and capital‐buffer dispersion, but reduces shareholder value in good states and further weakens recapitalisation incentives. When the bank can optimally reduce lending in bad states, the capital buffers induced by dividend restrictions mitigate the contraction by weakening its precautionary motive.

We study the optimal depth of public deposit guarantees in a dynamic continuous-time framework where a bank endogenously chooses its liquid reserve buffer, dividend distributions, and credit risk exposure. The regulator sets a resolution requirement that governs bank closure and determines the potential fiscal shortfall on insured deposits. While a lower requirement preserves a distressed bank's continuation option to recover, it increases the public liability if the bank ultimately fails. Because the bank dynamically adjusts its dividend reflection barrier and portfolio choices in response to closure rules, the optimal policy balances the endogenous probability of closure against the conditional fiscal loss. We show that the welfare-maximizing public guarantee is non-monotonic in policy interest rates: coverage is deepest at intermediate rates and becomes strictly shallower at high and sufficiently negative rates. Below the zero lower bound, the lower bound on retail deposit rates compresses bank margins, eroding franchise value and diminishing the social value of regulatory forbearance.

This paper examines how state-dependent dividend restrictions (taxes and bans) and capital requirements influence a bank's capital buffer accumulation and risk-taking decisions. In the model, the bank distributes dividends and issues costly equity to maximise shareholder value, while its loans generate stochastic income under time-varying macroeconomic conditions. We solve the bank's stochastic control problem and derive its capital buffer distribution in closed form. Binding dividend restrictions in bad macroeconomic states increase capital retention but shift dividend payouts toward good states, reducing shareholder value. This reduction disincentivizes equity issuance following adverse income shocks. Dividend shifting and recapitalisation disincentives increase the bank's capital buffer dispersion in the long run. Coordinating dividend restrictions with counter-cyclical capital requirements mitigates value losses in bad states and capital-buffer dispersion, but reduces shareholder value in good states and further weakens recapitalisation incentives. When the bank can optimally reduce lending in bad states, the capital buffers induced by dividend restrictions mitigate the contraction by weakening its precautionary motive.

We develop a tractable model economy in which public capital improves aggregate productivity, and the taxpayers have heterogeneous evasion opportunities. By issuing bonds, compliant taxpayers supply the evaders with an instrument to hedge against auditing risks, thereby expanding their evasion capacity. The wealth share of tax evaders relates negatively to the economy’s productivity but has a hump-shaped relationship with the growth rate of aggregate capital. The fiscal policy that maximizes welfare differs from the one that maximizes tax revenues because the latter does not account for the redistribution of wealth (and risk) between compliant and evasive taxpayers.

We develop a dynamic model economy where self-employed entrepreneurs allocate their net worth to their firm capital and risk-less government bonds, facing borrowing constraints, uninsurable labour endowment and capital depreciation risk. We derive a numerical approximation of the model’s equilibrium and compare it with a benchmark economy with no capital risk. Unlike labour endowment risk, capital risk reduces aggregate capital accumulation and wages and generates a positive risk premium. Low- (high-) net-worth entrepreneurs, whose consumption depends primarily on labour (financial) income, hold higher (lower) capital risk exposure. These patterns exacerbate inequality by increasing the share of financially constrained individuals and fattening the tails of the net worth distribution. Fiscal policy affects these outcomes by redistributing resources and affecting the risk premium. Capital tax cuts benefit more low- or high-net-worth entrepreneurs, depending on whether taxes on bonds or labour income finance them.

We develop a continuous-time model of a production economy where households face leverage constraints, uninsurable labour income shocks, and capital depreciation risk. We derive a numerical approximation of the model's competitive equilibrium and compare it with a benchmark economy with no capital risk. Introducing capital risk generates a positive risk premium while fostering aggregate capital accumulation and safe asset demand. At the same time, it exacerbates wealth inequality by making poor households' net worth more volatile than their wealthier peers. In this framework, we investigate the impact of fiscal policy on households' wealth distribution and welfare. Fiscal policy influences the equilibrium wealth distribution by changing the risk premium. This channel unevenly impacts households' consumption and asset allocation decisions, depending on their wage and net worth levels. Tax cuts on risky capital may benefit wealthy or poor households, depending on whether they are financed by raising taxes on safe assets or labour.