Distributional Effects of Boom-Bust Cycles in Developing Countries with Financial Frictions

Ahmet Aysan

MPRA Paper from University Library of Munich, Germany

Abstract: This paper sheds light on the distributional implications of the exchange rate based stabilizations with financial imperfections when a country is populated by heterogeneous agents with respect to their source of income. This paper shows that boom-bust cycles in developing countries lead to income redistribution from tradable to nontradable sectors. Since the share of tradable sectors in aggregate GDP increases above its usual share with the devaluation of the currency, the individuals in tradable sectors pay more tax than what they receive as capital inflow in the expansion phase of the economy. The opposite holds for the individuals in nontradable sectors who gain more from the capital inflow as compared to what they lose from taxation

Keywords: Distributional Effects; Boom-Bust Cycles; Financial Frictions (search for similar items in EconPapers)
JEL-codes: F34 F41 G15 (search for similar items in EconPapers)
Date: 2006
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Related works:
Working Paper: Distributional Effects of Boom-Bust Cycles in Developing Countries with FinancialFrictions (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:5484

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