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Debt Taxes During Crises, a Blessing in Disguise?

Author

Listed:
  • Julian A. Parra-Polania

    (Banco de la Republica (Central Bank of Colombia))

  • Carmina O. Vargas

    (Banco de la Republica (Central Bank of Colombia))

Abstract

Models with an occasionally binding credit constraint are used to study financial crises. We examine the welfare effects of implementing a policy designed for a specific type of constraint when the economy is facing a different one. To this purpose we analyze the implementation of ex ante (macropru- dential) versus ex post debt taxes across four possible constraint scenarios (depending on whether creditors assess current or future and total or dispos able income of debtors). Our main conclusion is that a debt tax applied only during potentially constrained periods (ex post) is a better policy in three of the four possible cases.

Suggested Citation

  • Julian A. Parra-Polania & Carmina O. Vargas, 2025. "Debt Taxes During Crises, a Blessing in Disguise?," Annals of Economics and Finance, Society for AEF, vol. 26(2), pages 707-730, November.
    • Handle: RePEc:cuf:journl:y:2025:v:26:i:2:parra-polaniavargas
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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G01 - Financial Economics - - General - - - Financial Crises

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