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Financial Repression and Laffer Curves

Author

Listed:
  • Kanat S. Isakov

    (National Research University Higher School of Economics)

  • Sergey E. Pekarski

    (National Research University Higher School of Economics)

Abstract

This paper uses a simple calibrated general equilibrium model to evaluate the revenue from financial repression and its impact on Laffer curves for consumption, capital and labor taxes. By imposing a requirement for households to hold public debt with a below-market rate of return the government distorts optimal household allocation and raises extra revenues. Tighter financial repression shifts Laffer curves for labor and consumption down, but increases revenue from capital income taxation. Total budget revenue increases, which allow financing more public goods and can be welfare-improving

Suggested Citation

  • Kanat S. Isakov & Sergey E. Pekarski, 2015. "Financial Repression and Laffer Curves," HSE Working papers WP BRP 113/EC/2015, National Research University Higher School of Economics.
    • Handle: RePEc:hig:wpaper:113/ec/2015
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    File URL: http://www.hse.ru/data/2015/12/10/1133712070/113EC2015.pdf
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    References listed on IDEAS

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    1. Reinhart, C. M., 2012. "The return of financial repression," Financial Stability Review, Banque de France, issue 16, pages 37-48, April.
    2. Carmen M. Reinhart & M. Belen Sbrancia1, 2015. "The liquidation of government debt," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 30(82), pages 291-333.
    3. Cooley, Thomas F. & Hansen, Gary D., 1992. "Tax distortions in a neoclassical monetary economy," Journal of Economic Theory, Elsevier, vol. 58(2), pages 290-316, December.
    4. Giovannini, Alberto & de Melo, Martha, 1993. "Government Revenue from Financial Repression," American Economic Review, American Economic Association, vol. 83(4), pages 953-963, September.
    5. Trabandt, Mathias & Uhlig, Harald, 2011. "The Laffer curve revisited," Journal of Monetary Economics, Elsevier, vol. 58(4), pages 305-327.
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    Cited by:

    1. Khalid Mehmood & Sajjad Ahmad & Tariq Mehmood & Muhammad Mohsin & Muhammad Ishfaq, 2022. "Does Laffer Curve Exist in Tax Structure of Pakistan? A Threshold Regression Analysis," Journal of Economic Impact, Science Impact Publishers, vol. 4(1), pages 145-149.
    2. Emilian Dobrescu, 2018. "Functional trinity of public finance in an emerging economy," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 7(1), pages 1-27, December.

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    More about this item

    Keywords

    financial repression; tax distortions; Laffer curve.;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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