Excess Capital Flows and the Burden of Inflation in Open Economies
Mihir A. Desai and
James Hines ()
No 6064, NBER Working Papers from National Bureau of Economic Research, Inc
This paper estimates the efficiency consequences of interactions between nominal tax systems and inflation in open economies. Domestic inflation changes after-tax real interest rates at home and abroad, thereby stimulating international capital movement and influencing domestic and foreign tax receipts, saving, and investment. The efficiency costs of inflation-induced international capital reallocations are typically much larger than those that accompany inflation in closed economies, even if capital is imperfectly mobile internationally. Differences between inflation rates are responsible for international capital movements and accompanying deadweight losses, suggesting that international monetary coordination has the potential to reduce the inefficiencies associated with inflation-induced capital movements.
JEL-codes: F32 H87 (search for similar items in EconPapers)
Note: ME PE
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Published as The Costs and Benefits of Price Stability. Feldstein, Martin, ed., Chicago: The University of Chicago Press, 1999, pp. 235-268.
Published as Excess Capital Flows and the Burden of Inflation in Open Economies , Mihir A. Desai, James R. Hines, Jr.. in The Costs and Benefits of Price Stability , Feldstein. 1999
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