Managing Credit Booms and Busts: A Pigouvian Taxation Approach

Olivier Jeanne and Anton Korinek

No 16377, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study a dynamic model in which the interaction between debt accumulation and asset prices magnifies credit booms and busts. We find that borrowers do not internalize these feedback effects and therefore suffer from excessively large booms and busts in both credit flows and asset prices. We show that a Pigouvian tax on borrowing may induce borrowers to internalize these externalities and increase welfare. We calibrate the model by reference to (i) the US small and medium-sized enterprise sector and (ii) the household sector, and find the optimal tax to be countercyclical in both cases, dropping to zero in busts and rising to approximately half a percentage point of the amount of debt outstanding during booms.

JEL-codes: E44 G38 (search for similar items in EconPapers)
Date: 2010-09
Note: IFM ME EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (214)

Published as Olivier Jeanne & Anton Korinek, 2018. "Managing Credit Booms and Busts: A Pigouvian Taxation Approach," Journal of Monetary Economics, .

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Related works:
Journal Article: Managing credit booms and busts: A Pigouvian taxation approach (2019)
Working Paper: Managing Credit Booms and Busts: A Pigouvian Taxation Approach (2010)
Working Paper: Managing Credit Booms and Busts: A Pigouvian Taxation Approach (2010)
Working Paper: Managing Credit Booms and Busts: A Pigouvian Taxation Approach (2010)
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