Abstract
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.
Authors
- C. A. E. Goodhart
- M. U. Peiris
- D. P. Tsomocos
JEL codes
- F34
- G15
- G18