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Financial Repression in a Small Open Economy: The Case of Laos

Author

Listed:
  • Shigeto Kitano

    (Research Institute for Economics and Business Administration, Kobe University, JAPAN
    Fuculty of International Studies, Hiroshima City University, JAPAN)

Abstract

Using a DSGE model, we examine the effects of financial repression policies on the Lao economy. Facing a high level of external debt, the Lao government is likely to rely increasingly on domestic financing, thereby creating incentives to use financial repression. We consider two types of financial repression policies: requiring domestic banks to increase their holdings of government bonds and repressing the government's interest payments through a tax on banks' returns on government bonds. Our numerical experiments show that both policies crowd out capital investment, reduce output, and ultimately worsen the government's primary balance. These results suggest that financial repression may worsen the government's fiscal condition despite its intended purpose of easing the fiscal burden.

Suggested Citation

  • Shigeto Kitano, 2026. "Financial Repression in a Small Open Economy: The Case of Laos," Discussion Paper Series DP2026-24, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2026-24
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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2026-24.pdf
    File Function: First version, 2026
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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
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O29 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Other

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