On the Complementarity of Commercial Policy, Capital Controls, and Inflation Tax
AbstractThis paper studies the optimal use of distortive policies aimed at raising a given real revenue, in a general equilibrium framework in which lump-sum taxes are absent. The policies analyzed are an inflation tax,commercial policy, and an implicit tax on capital inflows implemented by capital controls. It is shown that we would tend to avoid activating an inflation tax for small revenue needs. Furthermore, if the policy target were allocative, we would tend to use only one policy instrument.Thus, each policy has its own comparative advantage, and their combined use is justified when the target is raising government revenue. As a by-product of the paper,we study the determinants of exchange rates, prices, and quantities in an economy subject to capital controls and commercial policy.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 19 (1986)
Issue (Month): 1 (February)
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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
Web page: http://economics.ca/cje/
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Other versions of this item:
- Joshua Aizenman, 1985. "On the Complementarity of Commercial Policy, Capital Controls and Inflation Tax," NBER Working Papers 1583, National Bureau of Economic Research, Inc.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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3445095, Harvard University Department of Economics.
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3445091, Harvard University Department of Economics.
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2007-91, Tilburg University, Center for Economic Research.
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- Huizinga, H.P., 1996. "The Taxation Implicit in Two-Tiered Exchange Rate Systems," Discussion Paper 1996-100, Tilburg University, Center for Economic Research.
- Eran Yashiv, 1997. "Capital Controls as Taxation Policy," International Tax and Public Finance, Springer, vol. 4(3), pages 263-276, July.
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- Joshua Aizenman, 1986. "Country Risk, Asymmetric Information and Domestic Policies," NBER Working Papers 1880, National Bureau of Economic Research, Inc.
- Goldberg, Linda S., 1995. "Exchange rate regime reforms with black market leakages," Journal of Development Economics, Elsevier, vol. 48(1), pages 167-187, October.
- Daekuen Park & Jeffrey Sachs, 1987. "Capital Controls and the Timing of Exchange Regime Collapse," NBER Working Papers 2250, National Bureau of Economic Research, Inc.
- Joshua Aizenman, 1985. "Inflation, Tariffs and Tax Enforcement Costs," NBER Working Papers 1712, National Bureau of Economic Research, Inc.
- Pinto, Brian, 1988. "Black markets for foreign exchange, real exchange rates, and inflation : overnight versus gradual reform in sub-Saharan Africa," Policy Research Working Paper Series 84, The World Bank.
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