Government Revenue from Financial Repression

Alberto Giovannini and Martha de Melo

American Economic Review, 1993, vol. 83, issue 4, 953-63

Abstract: This paper provides empirical evidence on the effects of financial repression on government finances. Financial repression is a combination of controls on international capital flows with restrictions on domestic interest rates. The result is an artificially low cost of domestic funding to governments. The authors estimate the government revenue from financial repression as the difference between the foreign and the domestic cost of funds, times the domestic stock of government debt. The evidence indicates that the revenue from financial repression can be quite substantial and, for several countries, it is of the same order of magnitude as seigniorage. Copyright 1993 by American Economic Association.

Date: 1993
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