Daniel G. Garrett

• Daniel Garrett and Sophie Shive (Under Review), Power banks: do tax equity investors add value to renewable power projects?. Abstract

  We investigate distortions in performance and value stemming from the capital structure of renewable power plants. In 652 U.S. plants from 2006-2024, wind (solar) plants, for which tax equity returns depend (do not depend) on production quantity, produce 6-9% (no) closer to capacity until the tax equity investor’s exit. Tax-equity financed wind plants have lower revenue per megawatt produced, negatively affecting common equity returns. Two natural experiments suggest that the greater capacity utilization is due to monitoring and contracting by tax equity investors and not the relaxing of financial constraints or ex-ante project selection. Tax equity’s distortionary effect is attenuated by the presence of back-levered debt, which is held by equally sophisticated investors and is secured by the sponsor’s equity position in the project.

• Daniel Garrett (2024), Conflicts of Interest in Municipal Bond Advising and Underwriting, Review of Financial Studies, 37 (12), pp. 3835-3876. Abstract

  When can financial advisor conflicts of interest generate worse outcomes for clients? A regulation following from Dodd-Frank prohibits municipal advisors from simultaneously acting as bond underwriters. Using a difference-in-differences approach and 20,051 bond auctions, I test whether limited advisor privileges affect financial advice and borrower outcomes. Financing costs of bonds with potential dual advisor-underwriters fall by 11.4 basis points after the advisor is no longer allowed to underwrite. The decline follows from increases in standardization, third-party certification, and auction participation, all of which are consistent with limiting the adverse selection that arises from advisors withholding information from the market.

• Daniel Garrett, Eric Ohrn, Juan Carlos Suarez Serrato (Work In Progress), Effects of International Tax Provisions on Domestic Labor Markets. Abstract

  How does international taxation impact domestic workers? We study two fundamental elements of international tax systems by analyzing US provisions that isolate these elements. The first provision—the 1997 “Check-the-Box” regulations—lowered effective tax rates abroad by facilitating profit shifting from high tax foreign affiliates to tax havens. The second provision—the 2004 “repatriation holiday”—decreased tax costs of repatriating foreign earnings. Using a dynamic difference-in-differences framework, we estimate that local exposure to Check-the-Box significantly reduced domestic employment and earnings. This result implies that multinationals substitute domestic with foreign activity in response to lower effective tax rates abroad. We find the repatriation holiday had no effects on labor markets, indicating foreign cash holdings of US MNCs are not an important source of financing for domestic business activity. We conclude that policies that lower the foreign taxes of US MNCs are unlikely to benefit domestic workers.

• Daniel Garrett and Ivan T. Ivanov (Forthcoming), Gas, Guns, and Governments: Financial Costs of Anti-ESG Policies. Abstract

  We study how regulation limiting ESG policies distorts financial market outcomes. In 2021 Texas enacted laws that prohibit municipalities from contracting with banks with certain ESG policies, leading to the exit of five of the largest municipal bond underwriters from the state. Issuers previously reliant on these underwriters face higher uncertainty and borrowing costs since the enactment of the laws. These effects are consistent with deterioration in underwriter competition as issuers face fewer potential underwriters. Texas issuers will incur $300-$500 million in additional interest on the $31.8 billion borrowed during the first eight months following enactment.

• Daniel Garrett, Andrey Ordin, James Roberts, Juan Carlos Suarez Serrato (2023), Tax Advantages and Imperfect Competition in Auctions for Municipal Bonds, The Review of Economic Studies, 90 (2), pp. 815-851. https://doi.org/10.1093/restud/rdac035 Abstract

  We study the interaction between tax advantages for municipal bonds and the market structure of auctions for these bonds. We show that this interaction can limit a bidder’s ability to extract information rents and is a crucial determinant of state and local governments’ borrowing costs. Reduced-form estimates show that increasing the tax advantage by 3 pp lowers mean borrowing costs by 9–10%⁠. We estimate a structural auction model to measure markups and to illustrate and quantify how the interaction between tax policy and bidder strategic behaviour determines the impact of tax advantages on municipal borrowing costs. We use the estimated model to evaluate the efficiency of Obama and Trump administration policies that limit the tax advantage for municipal bonds. Because reductions in the tax advantage inflate bidder markups and depress competition, the resulting increase in municipal borrowing costs more than offsets the tax savings to the government. Finally, we use the model to analyse a recent non-tax regulation that affects entry into municipal bond auctions.

• Daniel Garrett, Mark Curtis, Kevin Roberts, Eric Ohrn, Juan Carlos Suarez Serrato (Under Revision), Capital Investment and Labor Demand. Abstract

  We study how tax policies that lower the cost of capital impact investment and labor demand. Difference-in-differences estimates using confidential US Census Data on manufacturing establishments show that tax policies increased both investment and employment, but did not lead to wage or productivity gains. Using a structural model, we show that the primary effect of the policy was to increase the use of all inputs by lowering overall costs of production. The policy further stimulated production employment due to the complementarity of production labor and capital. Supporting this conclusion, we find that investment is greater in plants with lower labor costs. Our results show that recent tax policies that incentivize capital investment do not lead manufacturing plants to replace workers with machines.

• Daniel Garrett, Eric Ohrn, Juan Carlos Suarez Serrato (2020), Tax Policy and Local Labor Market Behavior, American Economic Review: Insights, 2 (1), pp. 83-100. 10.1257/aeri.20190041 Abstract

  Since 2002, the US government has encouraged business investment using accelerated depreciation policies that significantly reduce investment costs. We provide the first in-depth analysis of this stimulus on employment and earnings. Our local labor markets approach exploits cross-industry variation in policy generosity interacted with county-level industry location data. This strategy identifies the partial equilibrium effects of accelerated depreciation. Places that experience larger decreases in investment costs see an increase in employment and earnings. In contrast, the policy does not have positive effects on earnings-per-worker. Overall, our findings suggest federal corporate tax policy has large effects on local labor markets.

• Daniel Garrett and Juan Carlos Suarez Serrato (2019), How Elastic is the Demand for Tax Havens? Evidence from the US Possessions Corporations Tax Credit, AEA Papers and Proceedings, 109 (), pp. 493-499. 10.1257/pandp.20191044 Abstract

  Why do some firms adopt certain tax havens and how sensitive is the demand for tax havens? We address these questions by studying how the repeal of Section 936 tax credits affected firms with affiliates in Puerto Rico. We first describe the characteristics of US multinationals that were exposed to Section 936. We then show that the market value of exposed firms decreased after losing access to Section 936, implying that firms could not perfectly substitute to other tax havens. Finally, we find that firms exposed to Section 936 did not respond by expanding their network of tax havens.

Current Courses

• FNCE9260 - Empirical Methods In Corporate Finance

  The course will cover a variety of micro-econometric models and methods including panel data models, program evaluation methods e.g. difference in differences, matching techniques, regression discontinuity design, instrumental variables, duration models, structural estimation, simulated methods of moments. The structure of the course consists of lectures, student presentations, and empirical exercises. Published studies will be utilized in a variety of fields such as corporate finance, labor economics, and industrial organization to illustrate the various techniques. The goal of the course is to provide students with a working knowledge of various econometric techniques that they can apply in their own research. As such, the emphasis of the course is on applications, not theory. Students are required to have taken a graduate sequence in Econometrics, you should be comfortable with econometrics at the level of William Green's "Econometric Analysis of Cross-Section and Panel Data".

  FNCE9260001 ( Syllabus )

Past Courses

• FNCE2030 - Advanced Corp Finance

  This course discusses the theory and empirical evidence related to the various investment and financing policies of the firm and attempts to improve decision-making ability in these areas. This course covers aspects of financial management not covered in FNCE 1000, including mergers and acquisitions, corporate reorganizations, financial planning and working capital management. It also offers a more rigorous coverage of topics discussed in FNCE 1000, such as investment under uncertainty, cost of capital, capital structure, pricing of selected financial instruments and dividend policy.

• FNCE7030 - Advanced Corp Finance

  The objective of this course is to study the major decision-making areas of managerial finance and some selected topics in financial theory. The course reviews the theory and empirical evidence related to the investment and financing policies of the firm and attempts to develop decision-making ability in these areas. This course serves as an extension of FNCE 6110. Some areas of financial management not covered in FNCE 6110 are covered in FNCE 7030. These may include leasing, mergers and acquisitions, corporate reorganizations, financial planning, and working capital management, and some other selected topics. Other areas that are covered in FNCE 6110 are covered more in depth and more rigorously in FNCE 7030. These include investment decision making under uncertainty, cost of capital, capital structure, pricing of selected financial instruments and corporate liabilities, and dividend policy.

• FNCE9260 - Empirical Meth Corp Fn

  The course will cover a variety of micro-econometric models and methods including panel data models, program evaluation methods e.g. difference in differences, matching techniques, regression discontinuity design, instrumental variables, duration models, structural estimation, simulated methods of moments. The structure of the course consists of lectures, student presentations, and empirical exercises. Published studies will be utilized in a variety of fields such as corporate finance, labor economics, and industrial organization to illustrate the various techniques. The goal of the course is to provide students with a working knowledge of various econometric techniques that they can apply in their own research. As such, the emphasis of the course is on applications, not theory. Students are required to have taken a graduate sequence in Econometrics, you should be comfortable with econometrics at the level of William Green's "Econometric Analysis of Cross-Section and Panel Data".

• INSP4999 - Honors Thesis

  The senior thesis course is a capstone for seniors in the Huntsman Program in International Studies and Business. Students in the Huntsman Program should consult with the Huntsman Program advisors for more information.

• PPE4998 - Directed Honors Research

  Student arranges with a Penn faculty member to do research and write a thesis on a suitable topic. For more information on honors visit: https://ppe.sas.upenn.edu/study/curriculum/honors-theses

• Referee of the Year, National Tax Journal, 1970

Knowledge @ Wharton

• Does Financial Literacy Decline with Age?, Knowledge @ Wharton - 04/01/2025
• Retirement and the Changing Workforce | Peter Cappelli, Knowledge @ Wharton - 04/01/2025
• How Tariffs Will Impact the U.S. Auto Industry, Knowledge @ Wharton - 03/31/2025
• How to Prevent Student Loan Delinquency, Knowledge @ Wharton - 03/31/2025
• Jeremy Siegel on Stock Market Uncertainty, Knowledge @ Wharton - 03/28/2025
• NBA Analytics with Nate Duncan, Knowledge @ Wharton - 03/26/2025
• The Impact of Tariffs on North America’s Auto Industry, Knowledge @ Wharton - 03/26/2025
• Should We Compare Bitcoin to Gold? Lessons From the Last Financial Crisis, Knowledge @ Wharton - 03/25/2025
• What’s Causing Corporate Layoffs?, Knowledge @ Wharton - 03/25/2025
• International Taxation and U.S. Businesses | Daniel Garrett, Knowledge @ Wharton - 03/25/2025