The Welfare Cost Of Capital Immobility And Capital Controls
This paper examines the macroeconomic welfare effects of interest risk premia and controls that limit international capital mobility. Using extended loanable funds analysis, it first demonstrates how perfect capital mobility maximises national income, contrary to a prevalent view that it is inimical to economic welfare. As a corollary, the analysis then shows that capital controls, irrespective of their form, generally reduce national income and economic welfare by widening real cross-border interest differentials. Capital controls in the form of quantitative controls, such as the Chilean unremunerated reserve requirement system, and explicit taxes on foreign investment flows impose similar welfare losses. However, quantitative controls are relatively more costly than options to tax capital flows, due to revenue effects.
|Date of creation:||2002|
|Date of revision:|
|Contact details of provider:|| Postal: St. Lucia, Qld. 4072|
Phone: +61 7 3365 6570
Fax: +61 7 3365 7299
Web page: http://www.uq.edu.au/economics/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Neil Bruce & Douglas D. Purvis, 1982.
"The Specification and Influence of Goods and Factor Markets in Open Economy Macroeconomic Models,"
499, Queen's University, Department of Economics.
- Bruce, Neil & Purvis, Douglas D., 1985. "The specification and influence of goods and factor markets in open-economy macroeconomic models," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 16, pages 807-857 Elsevier.
- Sebastian Edwards, 1999.
"How Effective Are Capital Controls?,"
Journal of Economic Perspectives,
American Economic Association, vol. 13(4), pages 65-84, Fall.
- G. D. A. MacDougall, 1960. "THE BENEFITS and COSTS OF PRIVATE INVESTMENT FROM ABROAD: A THEORETICAL APPROACH," The Economic Record, The Economic Society of Australia, vol. 36(73), pages 13-35, 03.
- Feldstein, Martin & Horioka, Charles, 1980.
"Domestic Saving and International Capital Flows,"
Royal Economic Society, vol. 90(358), pages 314-29, June.
- J. E. Stiglitz, 1999. "Introduction," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 28(3), pages 249-254, November.
- Michael Ulan, 2000. "Review Essay: Is a Chilean-Style Tax on Short-Term Capital Inflows Stabilizing?," Open Economies Review, Springer, vol. 11(2), pages 149-177, April.
- Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521466004, December.
- Christopher J. Neely, 1999. "An introduction to capital controls," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 13-30.
- Isard,Peter, 1995. "Exchange Rate Economics," Cambridge Books, Cambridge University Press, number 9780521460477, December.
When requesting a correction, please mention this item's handle: RePEc:qld:uq2004:318. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (SOE IT)
If references are entirely missing, you can add them using this form.