Macroprudential vs. Ex-post Policy Interventions: when Domestic Taxes are Relevant for International Lenders
Julián Parra-Polanía () and
Carmina Vargas ()
Borradores de Economia from Banco de la Republica de Colombia
We argue that international lenders take into account that taxes (or subsidies) affect borrowers’ available income for debt repayments. Using an endowment-economy model, we show that by incorporating this fact into the analysis of ?financial crises from the pecuniary externality perspective, ex-post interventions are completely ineffective to manage crises and, instead, ex-ante capital controls are useful for correcting the externality that stems from the underestimation of the social costs of decentralized debt decisions.
Keywords: financial crisis; credit constraint; capital controls; macroprudential tax; exchange rate policy. (search for similar items in EconPapers)
JEL-codes: H23 D62 F34 F41 (search for similar items in EconPapers)
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Working Paper: Macroprudential vs. Ex-post Policy Interventions: when Domestic Taxes are Relevant for International Lenders (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:879
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