On the Complementarity of Commercial Policy, Capital Controls and Inflation Tax
This paper studies the optimal use of distortive policies aimed at raising a given real revenue, in a general equilibrium framework in which lump-sum taxes are absent. The policies analyzed are an inflation tax,commercial policy, and an implicit tax on capital inflows implemented by capital controls. It is shown that we would tend to avoid activating an inflation tax for small revenue needs. Furthermore, if the policy target were allocative, we would tend to use only one policy instrument.Thus, each policy has its own comparative advantage, and their combined use is justified when the target is raising government revenue. As a by-product of the paper,we study the determinants of exchange rates, prices, and quantities in an economy subject to capital controls and commercial policy.
|Date of creation:||Mar 1985|
|Date of revision:|
|Publication status:||published as Canadian Journal of Economics, Vol. 19, No. 1, pp. 114-133, (February 1986)|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Greenwood, Jeremy, 1983. "Expectations, the exchange rate, and the current account," Journal of Monetary Economics, Elsevier, vol. 12(4), pages 543-569, November.
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"Dynamics of a Floating Exchange Rate Regime,"
Journal of Political Economy,
University of Chicago Press, vol. 90(4), pages 728-54, August.
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"A Theory of Current Account and Exchange Rate Determinations,"
NBER Working Papers
1177, National Bureau of Economic Research, Inc.
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- Helpman, Elhanan, 1981.
"An Exploration in the Theory of Exchange-Rate Regimes,"
3445091, Harvard University Department of Economics.
- Helpman, Elhanan, 1981. "An Exploration in the Theory of Exchange-Rate Regimes," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 865-90, October.
- Jeremy Greenwood & Kent P. Kimbrough, 1987. "An Investigation in the Theory of Foreign Exchange Controls," Canadian Journal of Economics, Canadian Economics Association, vol. 20(2), pages 271-88, May.
- Helpman, Elhanan & Sadka, Efraim, 1979. "Optimal Financing of the Government's Budget: Taxes, Bonds, or Money?," American Economic Review, American Economic Association, vol. 69(1), pages 152-60, March.
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