This dissertation explores how financial market problems can impact the economy. The researchers use models and real-world data to study the effects of banking crises on investment, output, and employment. They find that recessions linked to banking crises lead to big drops in investment and long-lasting decreases in output. This is because financial shocks make it harder for businesses to get money for investments, causing a slump in production and jobs. The study suggests that almost a third of the US Great Recession's output and employment decline can be explained by this mechanism. The researchers also look at how financial issues affect optimal taxation for redistribution, showing that taxes can impact the efficiency of capital and overall productivity.