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Financial repression in the XXIst century

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  • Reis, Ricardo

Abstract

Large stocks of public and external debt tempt policymakers to extract resources from their creditors. This article characterizes three broad forms of financial repression that serve this purpose. The first consists of direct taxation of the financial sector through levies on financial transactions, banks’ income, or pension-fund assets. The second is a sudden and sufficiently persistent devaluation of the currency. The third raises the demand for the non-monetary services provided by different types of government liabilities while keeping their supply scarce, thereby creating yield discounts. Reviewing historical experience, including recent years, the article concludes that each of the three often fails to deliver sustained revenues, even if they can sometimes be temporarily large. Financial repression is an alluring temptation with illusory gains: yielding to it may generate substantial efficiency losses and produce only limited revenue.

Suggested Citation

  • Reis, Ricardo, 2026. "Financial repression in the XXIst century," LSE Research Online Documents on Economics 138502, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:138502
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    File URL: https://researchonline.lse.ac.uk/id/eprint/138502/
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    1. Bahaj, Saleem & Reis, Ricardo, 2026. "The fiscal implications of parallel currencies," LSE Research Online Documents on Economics 141134, London School of Economics and Political Science, LSE Library.

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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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