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Capital controls, collection costs and domestic public debt

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  • Aizenman, Joshua
  • Guidotti, Pablo E.

Abstract

The implications of a large public debt for the implementation of capital controls for an economy where tax revenue collection is costly are examined. Conditions are analyzed under which policymakers will resort to capital controls to reduce the cost of recycling domestic public debt. The linkages between a costly tax collection mechanism, capital controls, am domestic government debt are explored in terms of a two-period m:x1el of optimal taxation. Numerical simulations are provided to illustrate haw capital controls are linked to different domestic public debt levels am to different degrees of efficiency in tax-revenue collection.
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  • Aizenman, Joshua & Guidotti, Pablo E., 1994. "Capital controls, collection costs and domestic public debt," Journal of International Money and Finance, Elsevier, vol. 13(1), pages 41-54, February.
    • Handle: RePEc:eee:jimfin:v:13:y:1994:i:1:p:41-54
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    1. Alesina, Alberto & Tabellini, Guido, 1989. "External debt, capital flight and political risk," Journal of International Economics, Elsevier, vol. 27(3-4), pages 199-220, November.
    2. Auerbach, Alan J., 1985. "The theory of excess burden and optimal taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 2, pages 61-127, Elsevier.
    3. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
    4. Joshua Aizenman, 1983. "Government Size, Optimal Inflation Tax, and Tax Collection Costs," Eastern Economic Journal, Eastern Economic Association, vol. 9(2), pages 103-105, Apr-Jun.
    5. Carlos A. Végh, 1989. "Government Spending and Inflationary Finance: A Public Finance Approach," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 657-677, September.
    6. Carlos A. Végh & Pablo E. Guidotti, 1990. "Optimal Taxation Policies in the EMS: A Two-Country Model of Public Finance," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 311-337, June.
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    Cited by:

    1. Joshua Aizenman & Yothin Jinjarak, 2009. "Globalisation and Developing Countries - a Shrinking Tax Base?," Journal of Development Studies, Taylor & Francis Journals, vol. 45(5), pages 653-671.
    2. Joshua Aizenman & Ilan Noy, 2009. "Endogenous Financial and Trade Openness," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 175-189, May.
    3. Eduardo Siandra, 1999. "La inversión extranjera de los fondos de pensiones y el desarrollo del mercado de capitales doméstico," Documentos de Trabajo (working papers) 0599, Department of Economics - dECON.
    4. Bartolini, Leonardo & Drazen, Allan, 1997. "Capital-Account Liberalization as a Signal," American Economic Review, American Economic Association, vol. 87(1), pages 138-154, March.
    5. van der Windt, P.C. & Schaling, E. & Huizinga, H.P., 2007. "Capital Controls and Foreign Investor Subsidies Implicit in South Africa's Dual Exchange Rate System," Discussion Paper 2007-91, Tilburg University, Center for Economic Research.
    6. Aizenman, Joshua & Pasricha, Gurnain Kaur, 2013. "Why do emerging markets liberalize capital outflow controls? Fiscal versus net capital flow concerns," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 28-64.
    7. Impavido, Gregorio & Musalem, Alberto R. & Vittas, Dimitri, 2002. "Contractual savings in countries with a small financial sector," Policy Research Working Paper Series 2841, The World Bank.
    8. 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.
    9. Timm Betz & Andrew Kerner, 2016. "The influence of interest: Real US interest rates and bilateral investment treaties," The Review of International Organizations, Springer, vol. 11(4), pages 419-448, December.
    10. Joshua Aizenman & Ilan Noy, 2004. "Endogenous Financial and Trade Openness: Political Economy Considerations," Economics Study Area Working Papers 72, East-West Center, Economics Study Area, revised Sep 2004.
    11. Nicola Limodio, 2015. "The Development Impact of Financial Regulation: Evidence from Ethiopia and Antebellum USA," 2015 Meeting Papers 355, Society for Economic Dynamics.
    12. Reisen, Helmut, 1997. "Liberalizing foreign investments by pension funds: Positive and normative aspects," World Development, Elsevier, vol. 25(7), pages 1173-1182, July.
    13. repec:cte:whrepe:wh030602 is not listed on IDEAS
    14. William Gissy, 1999. "Treasury bill rates and treasury cash reserves," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 27(4), pages 435-443, December.
    15. Aizenman, Joshua, 2008. "On the hidden links between financial and trade opening," Journal of International Money and Finance, Elsevier, vol. 27(3), pages 372-386, April.
    16. Joshua Aizenman, 1998. "Privatization in Emerging Markets," NBER Working Papers 6524, National Bureau of Economic Research, Inc.

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