Skip to Main content Skip to Navigation
Journal articles

On the timing and optimality of capital controls: Public expenditures, debt dynamics and welfare

Abstract : This paper solves a second-best problem where a government has in particular to choose whether to tax financial inflows (capital con- trols) or not, and when. A multi-stage optimal control technique is used to this end. First, it is shown that it is optimal to switch in finite time from capital controls to full financial liberalization (zero tax on capital inflows) whenever a measure of total wealth is above a cer- tain threshold. In particular, a too large initial debt makes financial liberalization sub-optimal. Second, our analysis suggests that capital controls should be used countercyclically: booms should be responded by more financial liberalization while recessions should rather lead to more stringent capital controls. Third, when public expenditure is chosen in order to maximize social welfare, financial liberalization is not unaffordable only for poor countries, even wealthy countries might find it optimal to implement capital controls if they aim to keep a large amount of public expenditure. In short, the preservation of the welfare states might require a more frequent use of capital controls.
Complete list of metadatas

https://hal-amu.archives-ouvertes.fr/hal-01498252
Contributor : Elisabeth Lhuillier <>
Submitted on : Wednesday, March 29, 2017 - 5:32:24 PM
Last modification on : Wednesday, October 14, 2020 - 3:54:56 AM

Identifiers

  • HAL Id : hal-01498252, version 1

Citation

Raouf Boucekkine, Aude Pommeret, Fabien Prieur. On the timing and optimality of capital controls: Public expenditures, debt dynamics and welfare. International Journal of Economic Theory, Wiley, 2013, 9 (1), pp.101--112. ⟨hal-01498252⟩

Share

Metrics

Record views

470