by C. A. E. Goodharta, M. U. Peirisb, and D. P. Tsomocosc
We study a monetary economy with two large open economies displaying net real and financial flows. If default on cross-border loans is possible, taxing financial flows can reduce its negative consequences. In doing so it can improve welfare unilaterally, in some cases in a Pareto sense, via altering the terms of trade and reducing the costs of such default.
JEL Codes: F34, G15, G18.
Full article (PDF, 32 pages 436 kb)
Discussion by Francis E. Warnock
a London School of Economics and FMG
b ICEF, NRU Higher School of Economics, Moscow
c Saïd Business School and St. Edmund Hall, University of Oxford