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Capital Controls and Welfare

Author

Listed:
  • Shigeto Kitano

    (Research Institute for Economics and Business Administration (RIEB), Kobe University, Japan)

Abstract

This paper computes welfare levels under different degree of capital controls and compares them with the welfare level under perfect capital mobility by using the methodology of Schmitt-Grohe and Uribe (2007). We show that perfect capital mobility is not always optimal and that capital controls may enhance an economy's welfare level. There exists an optimal degree of capital-account restriction that achieves a higher level of welfare than that under perfect capital mobility, if the economy has costly financial intermediaries. The results of our analysis imply that as the domestic financial intermediaries are less efficient, the government should impose stricter capital controls in the form of a tax on foreign borrowing.

Suggested Citation

  • Shigeto Kitano, 2010. "Capital Controls and Welfare," Discussion Paper Series DP2010-01, Research Institute for Economics & Business Administration, Kobe University, revised Jul 2011.
    • Handle: RePEc:kob:dpaper:dp2010-01
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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2010-01.pdf
    File Function: Revised version, 2011
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Capital controls and welfare
      by Christian Zimmermann in NEP-DGE blog on 2010-02-02 04:05:30

    Citations

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    Cited by:

    1. Hao, Jia & Wang, Weining, 2025. "Capital account liberalization and sudden stops in global capital flows," International Review of Economics & Finance, Elsevier, vol. 98(C).
    2. Kitano, Shigeto & Takaku, Kenya, 2020. "Capital controls, macroprudential regulation, and the bank balance sheet channel," Journal of Macroeconomics, Elsevier, vol. 63(C).
    3. Shigeto Kitano & Kenya Takaku, 2016. "External Debt and Taylor Rules in a Small Open Economy," Pacific Economic Review, Wiley Blackwell, vol. 21(5), pages 541-559, December.
    4. Agénor, Pierre-Richard & Jia, Pengfei, 2020. "Capital controls and welfare with cross-border bank capital flows," Journal of Macroeconomics, Elsevier, vol. 65(C).
    5. Choi, Jae Hoon, 2020. "Capital controls and foreign exchange market intervention," Journal of International Money and Finance, Elsevier, vol. 101(C).
    6. Shigeto Kitano & Kenya Takaku, 2017. "Capital Controls and Financial Frictions in a Small Open Economy," Open Economies Review, Springer, vol. 28(4), pages 761-793, September.
    7. Shigeto Kitano & Kenya Takaku, 2018. "Capital Controls, Monetary Policy, And Balance Sheets In A Small Open Economy," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 859-874, April.
    8. Kitano Shigeto & Takaku Kenya, 2018. "Capital controls as a credit policy tool in a small open economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(1), pages 1-19, January.

    More about this item

    Keywords

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    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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