Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach

Olivier Jeanne and Anton Korinek

No WP10-5, Working Paper Series from Peterson Institute for International Economics

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.

Keywords: capital flows; deleveraging episodes; emerging market economies; Pigouvian tax (search for similar items in EconPapers)
JEL-codes: F3 F32 F34 G01 G15 G18 H21 (search for similar items in EconPapers)
Date: 2010-05
New Economics Papers: this item is included in nep-acc, nep-fmk and nep-ifn
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Citations: View citations in EconPapers (247)

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Related works:
Journal Article: Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach (2010)
Working Paper: Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:iie:wpaper:wp10-5

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