Optimal Capital Flow Taxes in Latin America
AbstractThis paper estimates optimal capital flow taxes for Latin American economies based on early warning models for sudden stops. The paper adopts the externality view advanced by Korinek (2010), according to which domestic agents do not internalize the costs of high debt in bad states of nature. Capital flow taxes realign private and social incentives, therefore avoiding credit constraints problems in the future. The early warning estimates of crisis likelihood, severity and amplification dynamics provide new stylized evidence on the externality view. The most relevant and statistically significant conditioning states were found to be international risk aversion, net foreign asset position, international reserves and overvaluation indicators. An interesting rule of thumb that emerged from the empirical estimates is that capital flow taxes should be proportional to the square of the likelihood of an external crisis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 268.
Date of creation: Mar 2012
Date of revision:
Contact details of provider:
Web page: http://www.bcb.gov.br/?english
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-03 (All new papers)
- NEP-CBA-2012-04-03 (Central Banking)
- NEP-IFN-2012-04-03 (International Finance)
- NEP-LAM-2012-04-03 (Central & South America)
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.:
- Enrique G. Mendoza & Katherine A. Smith, 2004.
"Quantitative Implication of A Debt-Deflation Theory of Sudden Stops and Asset Prices,"
NBER Working Papers
10940, National Bureau of Economic Research, Inc.
- Mendoza, Enrique G. & Smith, Katherine A., 2006. "Quantitative implications of a debt-deflation theory of Sudden Stops and asset prices," Journal of International Economics, Elsevier, vol. 70(1), pages 82-114, September.
- Nicolas E. Magud E. & Carmen M. & Kenneth S. Rogoff, 2011.
"Capital Controls: Myth and Reality--A Portfolio Balance Approach,"
Working Paper Series
WP11-7, Peterson Institute for International Economics.
- Nicolas E. Magud & Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "Capital Controls: Myth and Reality - A Portfolio Balance Approach," NBER Working Papers 16805, National Bureau of Economic Research, Inc.
- Philip R. Lane & Gian-Maria Milesi-Ferretti, 2006.
"The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004,"
IMF Working Papers
06/69, International Monetary Fund.
- Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, vol. 73(2), pages 223-250, November.
- Philip R. Lane & Gian Maria Milesi-Ferretti, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities,1970–2004," The Institute for International Integration Studies Discussion Paper Series iiisdp126, IIIS.
- Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004," CEPR Discussion Papers 5644, C.E.P.R. Discussion Papers.
- Kaddour Hadri, 2000.
"Testing for stationarity in heterogeneous panel data,"
Royal Economic Society, vol. 3(2), pages 148-161.
- Tom Doan, . "HADRI: RATS procedure to implement Hadri test for unit roots in panel data," Statistical Software Components RTS00084, Boston College Department of Economics.
- Kaddour Hadri, 1999. "Testing For Stationarity In Heterogeneous Panel Data," Research Papers 1999_04, University of Liverpool Management School.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benjamin Tabak).
If references are entirely missing, you can add them using this form.