Optimal tax on capital inflows discriminated by debt-risk profile
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 %.
KeywordsOptimal tax Capital flows Externalities Financial constraint
JEL ClassificationH23 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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