The Welfare Cost of Capital Controls

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Title The Welfare Cost of Capital Controls
Author Makin, Anthony John; Robson, Alexander
Journal Name Economic Analysis and Policy
Editor A/Professor Jay Bandaralage
Year Published 2006
Place of publication Australia
Publisher Economic Society of Australia
Abstract This paper examines the macroeconomic implications of capital controls that limit international financial flows to emerging economies. Using extended loanable funds analysis, it first demonstrates how perfect capital mobility contributes to development, contrary to a prevalent view that international borrowing is inimical to the economic welfare of developing economies. As a corollary, the analysis then shows that capital controls, irrespective of form, generally reduce development potential and economic welfare by widening real cross-border interest differentials. Capital controls in the form of quantitative controls, such as the Chilean unremunerated reserve requirement system, and explicit taxes on foreign investment flows impose similar welfare losses. However, quantitative controls are relatively more costly than options to tax capital flows, due to revenue effects.
Peer Reviewed Yes
Published Yes
Volume 36
Issue Number 1 & 2
Page from 1
Page to 12
ISSN 0313-5926
Date Accessioned 2007-03-16
Language en_AU
Faculty Griffith Business School
Subject International Economics and International Finance
Publication Type Journal Articles (Refereed Article)
Publication Type Code c1

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