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The Taxation Implicit in Two-Tiered Exchange Rate Systems

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  • Huizinga, H.P.

    (Tilburg University, Center For Economic Research)

Abstract

A two-tiered exchange rate system can be interpreted as a set of separate taxes on money and other financial assets.If the official two-tiered exchange rate system coexists with a black market for foreign exchange, then there is an implicit taxation of international goods trade as well.This paper presents some evidence on the tax rates and tax revenues implicit in the exchange rate systems of the Bahamas (from 1978 to 1995), the Dominican Republic (from 1970 to 1984) and South Africa (from 1973 to 1995).Only the Bahamas appears to have received positive tax revenues from the implicit taxation of international capital flows, while only South Africa is estimated to have obtained positive tax revenues from the implicit taxation of international goods trade.

Suggested Citation

  • Huizinga, H.P., 1996. "The Taxation Implicit in Two-Tiered Exchange Rate Systems," Discussion Paper 1996-100, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:e01fa769-96e8-4c5e-b9b5-a472d1cbf85e
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    File URL: https://pure.uvt.nl/portal/files/525781/100.pdf
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    References listed on IDEAS

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    1. Kiguel, Miguel & O'Connell, Stephen A, 1995. "Parallel Exchange Rates in Developing Countries," World Bank Research Observer, World Bank Group, vol. 10(1), pages 21-52, February.
    2. Joyce Sherwood, 1956. "Revenue Features of Multiple Exchange Rate Systems: Some Case Studies," IMF Staff Papers, Palgrave Macmillan, vol. 5(1), pages 74-107, February.
    3. Huizinga, Harry, 1991. "Law enforcement and the black market exchange rate," Journal of International Money and Finance, Elsevier, vol. 10(4), pages 527-540, December.
    4. Frenkel, Jacob A. & Razin, Assaf, 1989. "Exchange-rate management viewed as tax policies," European Economic Review, Elsevier, vol. 33(4), pages 761-781, April.
    5. Joshua Aizenman, 1986. "On the Complementarity of Commercial Policy, Capital Controls, and Inflation Tax," Canadian Journal of Economics, Canadian Economics Association, vol. 19(1), pages 114-133, February.
    6. Dornbusch, Rudiger, 1986. "Special Exchange Rates for Capital Account Transactions," World Bank Economic Review, World Bank Group, vol. 1(1), pages 3-33, September.
    7. E. Murat Ucer & Pierre-Richard Agénor, 1995. "Exchange Market Reform, Inflation, and Fiscal Deficits," IMF Working Papers 95/78, International Monetary Fund.
    8. Giovannini, Alberto & de Melo, Martha, 1993. "Government Revenue from Financial Repression," American Economic Review, American Economic Association, vol. 83(4), pages 953-963, September.
    9. Adams, Charles & Greenwood, Jeremy, 1985. "Dual exchange rate systems and capital controls: An investigation," Journal of International Economics, Elsevier, vol. 18(1-2), pages 43-63, February.
    10. Vito Tanzi, 1995. "Government Role and the Efficiency of Policy Instruments," IMF Working Papers 95/100, International Monetary Fund.
    11. 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 271-288, May.
    12. Huizinga, H.P., 1996. "The Dual Role of Money and Optimal Financial Taxes," Discussion Paper 1996-99, Tilburg University, Center for Economic Research.
    13. Pinto, Brian, 1991. "Black markets for foreign exchange, real exchange rates and inflation," Journal of International Economics, Elsevier, vol. 30(1-2), pages 121-135, February.
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    Cited by:

    1. Schaling, E., 2005. "Capital Controls, Two-tiered Exchange Rate Systems and the Exchange Rate Policy : The South African Experience," Discussion Paper 2005-110, Tilburg University, Center for Economic Research.
    2. Huizinga, Harry & Schaling, Eric & van der Windt, Peter C, 2007. "Capital Controls and Foreign Investor Subsidies Implicit in South Africa's Dual Exchange Rate System," CEPR Discussion Papers 6347, C.E.P.R. Discussion Papers.
    3. Eric Schaling, 2009. "Capital Controls, Two-Tiered Exchange Rate Systems And Exchange Rate Policy: The South African Experience," South African Journal of Economics, Economic Society of South Africa, vol. 77(4), pages 505-530, December.
    4. Masahiro Hori & Yu Ching Wong, 2008. "Efficiency Costs of Myanmar’s Multiple Exchange Rate Regime," IMF Working Papers 08/199, International Monetary Fund.
    5. Huizinga, H.P., 1996. "The Dual Role of Money and Optimal Financial Taxes," Discussion Paper 1996-99, Tilburg University, Center for Economic Research.

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    Keywords

    taxation; exchange rate;

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