Working Paper: NBER ID: w5725
Authors: Leonardo Bartolini; Allan Drazen
Abstract: We present a model in which a government's current capital controls policy signals future policies. Controls on capital outflows evolve in response to news on technology, conditional on government attitudes towards taxation of capital. When there is uncertainty over government types, a policy of liberal capital outflows sends a favorable signal that may trigger a capital inflow. This prediction is consistent with the experience of several countries that have liberalized their capital account
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Liberalizing capital outflows (F32) | Increase in capital inflows (F32) |
| Government capital controls (F38) | Signal of future policies regarding capital outflows (F21) |
| Signal of future policies regarding capital outflows (F21) | Influence investor behavior (G41) |
| Imposition of capital controls (F38) | Negative expectations about future government behavior (D84) |
| Government behavior influenced by need for revenue (H27) | Imposition of capital controls (F38) |
| Capital account liberalization (F32) | Increase in capital inflows (F32) |