Capital-Account Liberalization as a Signal
The authors present a model in which a government's current capital-control policy signals future policies. Controls on capital outflows evolve in response to news on technology, conditional on government attitudes toward taxation of capital. When there is uncertainty over governmental types, a policy of liberal capital outflows sends a favorable signal that may trigger a capital inflow. This prediction is consistent with the experience of several countries that have liberalized their capital accounts. Copyright 1997 by American Economic Association.
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Volume (Year): 87 (1997)
Issue (Month): 1 (March)
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