diff --git a/src/Lean/Compiler/CompilerM.lean b/src/Lean/Compiler/CompilerM.lean
index 3e317cac41..9956936f2d 100644
--- a/src/Lean/Compiler/CompilerM.lean
+++ b/src/Lean/Compiler/CompilerM.lean
@@ -152,6 +152,20 @@ def visitLambda (e : Expr) : CompilerM (Array Expr × Expr) := do
   let (fvars, e) ← visitLambdaCore e
   return (fvars, e.instantiateRev fvars)
 
+/--
+Similar to `visitLambda` but for arrow-types.
+-/
+def visitArrow (type : Expr) : CompilerM (Array Expr × Expr) := do
+  go type #[]
+where
+  go (type : Expr) (fvars : Array Expr) := do
+    if let .forallE binderName type body binderInfo := type then
+      let type := type.instantiateRev fvars
+      let fvar ← mkLocalDecl binderName type binderInfo
+      go body (fvars.push fvar)
+    else
+      return (fvars, type.instantiateRev fvars)
+
 /--
 Given an expression representing a `match` return a tuple consisting of:
 1. The motive
diff --git a/src/Lean/Compiler/Simp.lean b/src/Lean/Compiler/Simp.lean
index c7e4a76e04..acc798416f 100644
--- a/src/Lean/Compiler/Simp.lean
+++ b/src/Lean/Compiler/Simp.lean
@@ -264,11 +264,14 @@ def isOnceOrMustInline (binderName : Name) : SimpM Bool := do
   | some .once | some .mustInline => return true
   | _ => return false
 
+def isSmallValue (value : Expr) : SimpM Bool := do
+  lcnfSizeLe value (← read).config.smallThreshold
+
 def shouldInlineLocal (localDecl : LocalDecl) : SimpM Bool := do
   if (← isOnceOrMustInline localDecl.userName) then
     return true
   else
-    lcnfSizeLe localDecl.value (← read).config.smallThreshold
+    isSmallValue localDecl.value
 
 structure InlineCandidateInfo where
   isLocal : Bool
@@ -365,6 +368,23 @@ private def simpUsingEtaReduction (e : Expr) : Expr :=
   | .letE n t v b d => .letE n t v (simpUsingEtaReduction b) d
   | _ => e
 
+private def etaExpand (type : Expr) (value : Expr) : CompilerM Expr := do
+  let typeArity := getArrowArity type
+  let valueArity := getLambdaArity value
+  if typeArity <= valueArity then
+    -- It can be < because of the "any" type
+    return value
+  else
+    withNewScope do
+      let (xs, _) ← visitArrow type
+      let value := getLambdaBody value
+      let value := value.instantiateRev xs[:valueArity]
+      let valueType ← inferType value
+      let f ← mkLocalDecl (← mkFreshUserName `_f) valueType
+      let k ← mkLambda #[f] (mkAppN f xs[valueArity:])
+      let value ← attachJp value k
+      mkLambda xs value
+
 /--
 Auxiliary function for projecting "type class dictionary access".
 That is, we are trying to extract one of the type class instance elements.
@@ -434,9 +454,6 @@ where
 
 def betaReduce (e : Expr) (args : Array Expr) : SimpM Expr := do
   -- TODO: add necessary casts to `args`
-  let rec getLambdaBody : Expr → Expr
-    | .lam _ _ b _ => getLambdaBody b
-    | b => b
   let result ← instantiateRevInternalize (getLambdaBody e) args
   trace[Meta.debug] "inline:\n{result}"
   return result
@@ -632,6 +649,7 @@ partial def visitLet (e : Expr) (xs : Array Expr := #[]): SimpM Expr := do
   modify fun s => { s with counter := s.counter + 1 }
   match e with
   | .letE binderName type value body nonDep =>
+    let type := type.instantiateRev xs
     let mut value := value.instantiateRev xs
     if value.isLambda then
       unless (← isOnceOrMustInline binderName) do
@@ -640,6 +658,25 @@ partial def visitLet (e : Expr) (xs : Array Expr := #[]): SimpM Expr := do
         we do it after its is inlined and we have information about the actual arguments.
         -/
         value ← visitLambda value
+        unless isJpBinderName binderName || (← isSmallValue value) do
+          /-
+          This lambda is not going to be inlined. So, we eta-expand it IF it is not a join point.
+          Recall that local function declarations that are not join points will be lambda lifted
+          anyway. Eta-expanding here also creates new simplification opportunities for
+          monadic local functions before we perform the lambda-lifting.
+          For example, consider the local function
+          ```
+          let _x.23 := fun xs body =>
+            ...
+            let _x.29 := StateRefT'.lift _x.24
+            let _x.30 := _x.25 _x.29
+            let _x.31 := fun a => ...
+            ReaderT.bind _x.30 _x.31
+          ```
+          The function applications `StateRefT'.lift` and `ReaderT.bind` are not inlined because
+          they are partially applied. After, we eta-expand this code, it will be reduced at this stage.
+          -/
+          value ← etaExpand type value
     else if let some value' ← simpValue? value then
       if value'.isLet then
         let e := mkFlatLet binderName type value' body nonDep
@@ -653,7 +690,6 @@ partial def visitLet (e : Expr) (xs : Array Expr := #[]): SimpM Expr := do
     else if let some e ← inlineApp? value xs body then
       return e
     else
-      let type := type.instantiateRev xs
       let x ← mkLetDecl binderName type value nonDep
       visitLet body (xs.push x)
   | _ =>
diff --git a/src/Lean/Compiler/Util.lean b/src/Lean/Compiler/Util.lean
index 467cbf29fc..f44b0ac225 100644
--- a/src/Lean/Compiler/Util.lean
+++ b/src/Lean/Compiler/Util.lean
@@ -170,11 +170,19 @@ where
             return false
       return true
 
+def getArrowArity (e : Expr) :=
+  match e with
+  | .forallE _ _ b _ => getArrowArity b + 1
+  | _ => 0
+
 def getLambdaArity (e : Expr) :=
   match e with
   | .lam _ _ b _ => getLambdaArity b + 1
   | _ => 0
 
+def getLambdaBody : Expr → Expr
+  | .lam _ _ b _ => getLambdaBody b
+  | b => b
 
 /--
 Whether a given local declaration is a join point.