Exchange Controls As A Fiscal Instrument / Stephanie Schmitt-Grohé, Martín Uribe.

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Schmitt-Grohé, Stephanie

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w31294.Publication details: Cambridge, Mass. National Bureau of Economic Research 2023.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: About 20 percent of countries have in place dual, multiple, or parallel exchange rates. Exchange controls represent a form of distortionary commercial policy. We show that they can also deflate the real value of external public debt. We study an optimal taxation problem of a government with chronic fiscal deficits and two distortionary instruments, money creation and exchange controls. We calibrate the model to Argentina, which over the past decade has experienced significant exchange controls and persistent fiscal deficits. We show that exchange controls can generate sizable fiscal revenue. However, the optimal level of exchange controls is virtually zero. Financing the fiscal deficit with exchange controls is possible but entails large welfare losses.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w31294 (Browse shelf(Opens below))	Not For Loan

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June 2023.

About 20 percent of countries have in place dual, multiple, or parallel exchange rates. Exchange controls represent a form of distortionary commercial policy. We show that they can also deflate the real value of external public debt. We study an optimal taxation problem of a government with chronic fiscal deficits and two distortionary instruments, money creation and exchange controls. We calibrate the model to Argentina, which over the past decade has experienced significant exchange controls and persistent fiscal deficits. We show that exchange controls can generate sizable fiscal revenue. However, the optimal level of exchange controls is virtually zero. Financing the fiscal deficit with exchange controls is possible but entails large welfare losses.