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...

We use changes in Brazil s tax on capital inflows from 2006 to 2011 to test for direct portfolio effects and externalities from capital controls on investor portfolios. The analysis is structured based on information from investor interviews. We find that an increase in Brazil s tax on foreign...

This paper studies the optimal taxation of capital income in a simple model of a small open economy where domestic residents can evade taxes on their foreign investment income. The national government can only tax domestic capital income and can impose capital controls, which, however, absorb...

We empirically examine the response of cross-border capital flows to economic uncertainty. Using bilateral banking flow data, we show that while banks reduce their exposure to a foreign country when it becomes more risky, they tend to increase their exposure to their home country in bad times (a...

This paper reexamines Aizenman`s (1985) results on the effects of capital controls during unanticipated trade liberalization using an intertemporal optimizing monetary model. Unlike in Aizenman`s model, which is based on the currency substitution model, foreign money is an interest-bearing asset...

This paper extends the Dornbusch model of overshooting exchange rates to discuss both exchange rate and output effects of capital controls that involve additional costs for international asset transactions. We show that, on the one hand, such capital controls have the merit of reducing the...

Capital controls are seen as a means to promote financial stability or improve macroeconomic adjustment in economies with nominal rigidities and suboptimal monetary policy. Such controls may take various forms, including explicit or implicit taxation of cross-border financial flows and dual or...

This paper extends the Dornbusch model of overshooting exchange rates to discuss both exchange rate and output effects of capital controls that involve additional costs for international asset transactions. We show that, on the one hand, such capital controls have the merit of reducing the...

The view that capital flows are typically exogenous destabilizing factors suggests the need for heavy regulation of financial flows. Another view, that capital flows are largely rational, endogenous responses to underlying conditions, suggests that policies, rather than market responses, are...

Countries' concerns about the value of their currency have been studied and documented extensively in the literature. Capital controls can be - and often are - used as a tool to manage exchange rate fluctuations. This paper investigates whether countries can benefit from using such a tool. We...