American Economic Review Vol. 100 No. 2 2010

Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach

Olivier Jeanne¹; Anton Korinek²

¹ Johns Hopkins University, NBER and CEPR, Mergenthaler Hall 454, 3400 N. Charles Street, Baltimore, MD 21218. · ² University of Maryland, Tydings Hall 4118F, College Park, MD 20742.

Abstract

This paper analyzes prudential controls on capital flows to emerging markets from the perspective of a Pigouvian tax that addresses externalities associated with the deleveraging cycle. It presents a model in which restricting capital inflows during boom times reduces the potential outflows during busts. This mitigates the feedback effects of deleveraging episodes, when tightening financial constraints on borrowers and collapsing prices for collateral assets have mutually reinforcing effects. In our model, capital controls reduce macroeconomic volatility and increase standard measures of consumer welfare.

DOI

10.1257/aer.100.2.403

Volume

100

Issue

2

Pages

403-407

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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