This thesis consists of four essays in finance with a focus on the challenges related to public and private finance in developing countries. The first paper studies whether replacing a cascading sales tax with a value-added tax (VAT) can contribute to reducing informality. I find that the adoption of VAT has limited effect on the extensive margin of formalization but a large effect on the intensive margin (formal sector output). Total tax revenues tend to increase after VAT adoption driven by higher income and corporate tax revenues. The results of the paper support the idea that VAT adoption favors more productive formal firms and contributes to growth-enhancing structural transformation. The second paper tries to answer the question whether markets punish or reward competent politicians. Using a unique dataset on Chinese mayors and the issuance of local government financial vehicle bond (LGFV bond), the paper finds that an increase of one standard deviation in a mayor’s ability lowers investors’ asking price by 0.13 percentage point, which amounts to a savings of 42 million yuan during a mayor’s tenure. The effect is stronger in the first year of a mayor’s tenure and on bonds issued by lower-rating issuers or by economically or financially less developed cities. The third paper switches the angle to private finance and examines the relationship real estate cycle and corporate investment. It shows that real estate prices significantly affect corporate investment in China through the collateral channel.