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Designing Policies in the Presence of Hawala Markets

Author

Listed:
  • Rao, R. Kavita

    (National Institute of Public Finance and Policy)

  • Tandon, Suranjali

    (National Institute of Public Finance and Policy)

Abstract

To deal with rising current account deficits, the government often uses instruments such as increase in customs tariffs. These are expected to induce an appreciation in the currency. In the presence of hawala markets which constitute an alternative payment mechanism, the control exerted by the customs tariffs is diluted, thereby reducing the effectiveness of this policy in controlling depreciation of the currency. The paper explores the impact of the existence of such a mechanism on the effectiveness of various policy instruments in influencing outcomes on the official foreign exchange markets and GDP.

Suggested Citation

  • Rao, R. Kavita & Tandon, Suranjali, 2015. "Designing Policies in the Presence of Hawala Markets," Working Papers 15/142, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:15/142
    Note: Working Paper 142, 2015
    as

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    File URL: http://www.nipfp.org.in/media/medialibrary/2015/01/WP_2015_142.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Hawala Market ; Exchange Rate ; Direct Tax Rate ; Tax Administration ; Customs Tariff;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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