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Review Essay: Is a Chilean-Style Tax on Short-Term Capital Inflows Stabilizing?

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  • Michael Ulan

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    Abstract

    In the wake of the 1997–1998 East Asian financial crisis, some economists recommended that affected countries adopt a Chilean-style tax on short-term capital inflows to maintain domestic macroeconomic stability. In Chile, the tax reduced capital inflows lengthened the maturity of inflows, and maintained interest rates at levels designed to avoid overheating—but not costlessly. Aside from second-best arguments, such a tax is justified as a temporary measure to buy time to reform and introduce prudential regulation and supervision of a country's financial system. Would dirigiste economies use the tax to facilitate reforms and remove it after effecting prudential regulation? Copyright Kluwer Academic Publishers 2000

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    File URL: http://hdl.handle.net/10.1023/A:1008387905740
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    Bibliographic Info

    Article provided by Springer in its journal Open Economies Review.

    Volume (Year): 11 (2000)
    Issue (Month): 2 (April)
    Pages: 149-177

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    Handle: RePEc:kap:openec:v:11:y:2000:i:2:p:149-177

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    Web page: http://www.springerlink.com/link.asp?id=100323

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    Keywords: capital controls; Chile; monetary policy;

    References

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    1. Reinhart, Carmen M & Reinhart, Vincent R, 1999. "On the Use of Reserve Requirements in Dealing with Capital Flow Problems," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(1), pages 27-54, January.
    2. Guillermo Le Fort & Carlos Budnevich, 1996. "Capital Account Regulations and Macroeconomic Policy: Two Latin American Experiences," Economics Working Paper Archive wp_162, Levy Economics Institute.
    3. Morris Goldstein (ed.), 1999. "Safeguarding Prosperity in a Global Financial System: The Future International Financial Architecture," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 50.
    4. Michael P. Dooley, 1995. "A Survey of Academic Literatureon Controls Over International Capital Transactions," IMF Working Papers 95/127, International Monetary Fund.
    5. Richard N. Cooper, 1999. "Should Capital Controls be Banished?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 89-142.
    6. Michael Mussa & Giovanni Dell'Ariccia & Barry J. Eichengreen & Enrica Detragiache, 1998. "Capital Account Liberalization," IMF Occasional Papers 172, International Monetary Fund.
    7. Leonardo Bartolini & Allan Drazen, 1996. "Capital account liberalization as a signal," Staff Reports 11, Federal Reserve Bank of New York.
    8. James Tobin, 1978. "A Proposal for International Monetary Reform," Eastern Economic Journal, Eastern Economic Association, vol. 4(3-4), pages 153-159, Jul/Oct.
    9. Salvador Valdés-Prieto & Marcelo Soto, 1998. "The Effectiveness of Capital Controls: Theory and Evidence from Chile," Empirica, Springer, vol. 25(2), pages 133-164, January.
    10. Eichengreen, Barry & Tobin, James & Wyplosz, Charles, 1995. "Two Cases for Sand in the Wheels of International Finance," Economic Journal, Royal Economic Society, vol. 105(428), pages 162-72, January.
    11. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1994. "The Capital Inflows Problem: Concepts And Issues," Contemporary Economic Policy, Western Economic Association International, vol. 12(3), pages 54-66, 07.
    12. Michael P. Dooley, 1996. "A Survey of Literature on Controls over International Capital Transactions," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 639-687, December.
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    Cited by:
    1. Makin, Tony & Robson, Alexander, 2006. "The Welfare Cost of Capital Controls," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 36(1-2), pages 13-24, March/Sep.
    2. Dr Anthony J. Makin & Alexander Robson, 2002. "The Welfare Cost Of Capital Immobility And Capital Controls," Discussion Papers Series 318, School of Economics, University of Queensland, Australia.
    3. Peter Montiel, 2014. "Capital Flows: Issues and Policies," Open Economies Review, Springer, vol. 25(3), pages 595-633, July.
    4. Edwards, Sebastian & Rigobon, Roberto, 2009. "Capital controls on inflows, exchange rate volatility and external vulnerability," Journal of International Economics, Elsevier, vol. 78(2), pages 256-267, July.
    5. Francisco A. Gallego F & Leonardo Hernández, 2003. "Microeconomic Effects of Capital Controls: The Chilean Experience During the 1990s," Working Papers Central Bank of Chile 203, Central Bank of Chile.

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