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 REPÚBLICA

Abstract: 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: D62 F34 F41 H23 (search for similar items in EconPapers)
Pages: 11
Date: 2015-04-13
New Economics Papers: this item is included in nep-mac and nep-pbe
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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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