Many emerging market economies use alternative forms of capital controls. Often the use of capital controls is related to the defense of the exchange rate. This paper examines the welfare case for capital controls, and the interaction between capital controls and the exchange rate. The main question is whether capital controls may be justified, in order to gain independence in monetary policy, ...

Imperfect altruism between generations may lead to insufficient capital accumulation. We study the welfare consequences of taxing the rent on a fixed production factor, such as land, in combination with age-dependent redistributions as a remedy. Taxing rent enhances welfare by increasing capital investment. This holds for any tax rate and recycling of the tax revenues except for combinations of...

Countries’ capital account policies might be contagious in the sense that domestic policies are driven by other countries’ policies. A model of strategic interactions is developed to show that countries’ best response to policy changes elsewhere consists in imitating this policy. Using a spatial econometric model, the hypothesis of policy interactions is tested in a large panel data set. The ev...

A fixed budget must be allocated to a finite number of different projects with uncertain outputs. The expected marginal productivity of capital in a project first increases then decreases with the amount of capital invested. Such behavior is common when output is a probability (of escaping infection, succeeding with an R&D project. . .). When the total budget is below some threshold, it is inve...

The sharp increase in equity prices over the 1990s was widely attributed to permanently higher productivity growth derived from the New Economy. This paper establishes a rational expectations model of technology innovations and equity prices, which shows that under plausible assumptions, productivity advances can only have temporary effects on the fundamentals of equity prices. Using historical...

We re-examine, from a political economy perspective, the standard view that higher capital mobility results in lower capital taxes a view, in fact, that is not confirmed by the available empirical evidence. We show that when a small economy is opened to capital mobility, the change of incidence of a tax on capital from capital owners to owners of the immobile factor may interact in such a way w...

We use the sample from 1978 to 2014 for the paper (doi:10.1016/j.tmp.2016.05.005). The data on GDP at constant 2005 USD (US dollar), and the gross fixed capital formation at constant 2005 USD are extracted from the World Bank (2015). The labour stock which includes direct and indirect employment and the tourism receipts (in USD) are sourced from the Sri Lanka Tourism Development Authority (http...