A Theory of Capital Controls as Dynamic Terms-of-Trade Manipulation
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Author(s)
Costinot, Arnaud
Lorenzoni, Guido
Werning, Ivan
Date Issued
February 2014
Journal
Journal of Political Economy
Publisher
University of Chicago Press, The
Citation
Costinot, Arnaud, Guido Lorenzoni, and Ivan Werning. “A Theory of Capital Controls as Dynamic Terms-of-Trade Manipulation.” Journal of Political Economy 122, no. 1 (February 2014): 77–128. © 2014 The University of Chicago Press
Version
Final published version
Abstract
We develop a theory of capital controls as dynamic terms-of-trade manipulation. We study an infinite-horizon endowment economy with two countries. One country chooses taxes on international capital flows in order to maximize the welfare of its representative agent, while the other country is passive. We show that a country growing faster than the rest of the world has incentives to promote domestic savings by taxing capital inflows or subsidizing capital outflows. Although our theory of capital controls emphasizes interest rate manipulation, the pattern of borrowing and lending, per se, is irrelevant.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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Article is made available in accordance with the publisher's policy and may be subject to US copyright law. Please refer to the publisher's site for terms of use.
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DOI of Published Version
https://doi.org/10.1086/674425
