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Debt taxes during crises, a blessing in disguise?

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  • Julian A. Parra-Polania
  • CarmiÒa O. Vargas

Abstract

Models with an occasionally binding credit constraint have been used to analyze Önancial crises and previous literature has highlighted that the speciÖc form of this constraint is decisive for policymaking conclusions. What are the welfare e§ects of implementing a policy that is appropriate for a speciÖc type of constraint when the economy is actually facing a di§erent one? We provide an answer by analyzing the implementation either of ex ante (or macroprudential) vs. ex post debt taxes in four possible collateral constraint cases (depending on whether creditors assess current or future and total or disposable income of debtors). Our main conclusion is that a debt tax applied only during potentially constrained periods (i.e., ex post) is a more favorable intervention if the policymaker does not know which credit constraint is facing or if it is more likely to be facing a disposable-income constraint (either for current or future income). **** RESUMEN: Para analizar las crisis financieras, se han utilizado modelos con una restricción crediticia ocasionalmente vinculante y la literatura previa ha destacado que la forma específica de esta restricción es decisiva para la formulación de políticas. ¿Cuáles son los efectos en el bienestar de la implementación de una política que es apropiada para un tipo específico de restricción cuando la economía se enfrenta en realidad a otra diferente? Damos una respuesta analizando la implementación de impuestos ex-ante (o macroprudenciales) sobre la deuda frente a impuestos ex post sobre la deuda en cuatro posibles casos de restricción de colateral (dependiendo de si los acreedores evalúan la renta actual o futura y la renta total o disponible de los deudores). Nuestra principal conclusión es que un impuesto sobre la deuda aplicado sólo durante períodos de crisis (es decir, ex post) es una intervención más favorable si el formulador de políticas no saber a qué restricción crediticia se enfrenta o si es más probable que se enfrente a una que depende del ingreso disponible (ya sea para ingresos corrientes o futuros).

Suggested Citation

  • Julian A. Parra-Polania & CarmiÒa O. Vargas, 2024. "Debt taxes during crises, a blessing in disguise?," Borradores de Economia 1270, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1270
    DOI: 10.32468/be.1270
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    References listed on IDEAS

    as
    1. Anton Korinek, 2011. "The New Economics of Prudential Capital Controls: A Research Agenda," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(3), pages 523-561, August.
    2. Jeanne, Olivier & Korinek, Anton, 2019. "Managing credit booms and busts: A Pigouvian taxation approach," Journal of Monetary Economics, Elsevier, vol. 107(C), pages 2-17.
    3. Ottonello, Pablo & Perez, Diego J. & Varraso, Paolo, 2022. "Are collateral-constraint models ready for macroprudential policy design?," Journal of International Economics, Elsevier, vol. 139(C).
    4. Benigno, Gianluca & Chen, Huigang & Otrok, Christopher & Rebucci, Alessandro & Young, Eric R., 2016. "Optimal capital controls and real exchange rate policies: A pecuniary externality perspective," Journal of Monetary Economics, Elsevier, vol. 84(C), pages 147-165.
    5. Javier Bianchi & Enrique G. Mendoza, 2018. "Optimal Time-Consistent Macroprudential Policy," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 588-634.
    6. Olivier Jeanne & Anton Korinek, 2020. "Macroprudential Regulation versus mopping up after the crash," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(3), pages 1470-1497.
    7. Enrique G. Mendoza, 2002. "Credit, Prices, and Crashes: Business Cycles with a Sudden Stop," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 335-392, National Bureau of Economic Research, Inc.
    8. Mr. Anton Korinek, 2011. "The New Economics of Capital Controls Imposed for Prudential Reasons+L4888," IMF Working Papers 2011/298, International Monetary Fund.
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    More about this item

    Keywords

    macroprudential policies; ex post policies; debt tax; financial constraint; financial crisis; sudden stops; política macroprudencial; políticas ex post; impuesto a la deuda; restricción financiera; crisis financieras; parada súbita;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G01 - Financial Economics - - General - - - Financial Crises

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