Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach
Чрезмерная волатильность потоков капитала: подход на основе пигувианского налогообложения
2010-05-01
SCID: 54.1/ppcqjzvw
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Pigouvian taxationcapital flow controlsdeleveraging cycleemerging marketsmacroeconomic volatility
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Abstract (AI)
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.
Key Findings
1
Reduced outflows mitigate mutually reinforcing feedback between tighter borrower constraints and declining collateral-asset prices.
2
Restricting capital inflows during boom periods reduces the magnitude of potential capital outflows during subsequent busts.
3
The paper frames prudential capital-flow controls as Pigouvian taxes correcting externalities generated during deleveraging cycles.
4
Within the model, capital controls lower macroeconomic volatility and improve standard measures of consumer welfare.
Research Object
Capital flows to emerging markets, particularly their boom–bust deleveraging cycles
Research Subject
The effects of Pigouvian taxation and prudential capital controls on deleveraging feedback effects, macroeconomic volatility, and consumer welfare
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2010-05-01
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