International Tax and Public Finance

, Volume 22, Issue 1, pp 102–119 | Cite as

Optimal tax on capital inflows discriminated by debt-risk profile

  • Julian A. Parra-Polania
  • Carmiña O. VargasEmail author


In this study, the optimal value of a tax on capital inflows is estimated so that private agents internalize the social costs of their borrowing decisions in an economy with financial constraints. A key feature of our model is that we provide a theoretical foundation to tax level differentiation by asset volatility. Using Colombian data for the 1996–2011 period (which includes the crisis of 1998–1999), we find the tax would be around 1.2 %.


Optimal tax Capital flows Externalities Financial constraint 

JEL Classification

H23 D62 F34 



The authors wish to thank the editor, Eckhard Janeba, and two anonymous referees for helpful comments. We also thank J. Bejarano, J. E. Gomez, J. Ojeda, H. Rincon, H. Vargas and A. Velasco for their valuable suggestions; A. Korinek for clarifications on the empirical analysis of his document (Korinek 2010). The opinions expressed herein are solely the responsibility of the authors and do not necessarily reflect those of the Central Bank of Colombia or its Board of Directors.


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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Banco de la República (Colombian Central Bank)BogotáColombia

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