Working Paper: NBER ID: w3604
Authors: Alberto Giovannini; Martha de Melo
Abstract: This paper presents an analysis of the theoretical underpinnings and the relevance of the phenomenon of financial repression from a public-finance perspective. The analysis explicitly accounts for the interaction between capital controls and financial repression. The proposed empirical estimate of the revenue from financial repression is based on the difference between the domestic and the foreign cost of borrowing of the government. The correlations of the revenue from financial repression with inflation, exchange rates and per-capita income are discussed.
Keywords: financial repression; government revenue; public finance; capital controls
JEL Codes: E62; H21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial repression (G28) | Distortions in intertemporal terms of trade (F16) |
| Financial repression (G28) | Portfolio allocation decisions (G11) |
| Financial repression (G28) | Government revenue proportional to total stock of assets held by investors (H29) |
| Domestic interest rate kept below world rate (E43) | Revenue stream for government (H27) |
| Financial repression (G28) | Discouragement of optimal investment in domestic productive activities (E22) |