Optimal tax on capital inflows discriminated by debt-risk profile

Macroprudential vs. ex-post policy interventions : when domestic taxes are relevant for international lenders

“…Some papers (e.g. Korinek, 2010Korinek, , 2011Bianchi, 2011;Parra-Polania and Vargas, 2015) show that ex-ante or macroprudential policies (e.g. a tax on debt in normal times) can correct the externality that arises from the underestimation, by private agents, of the social cost of debt.…”

“…As previous literature has shown (e.g. Bianchi, 2011;Korinek, 2011;Parra-Polania and Vargas, 2015), the SP improves social well-being by choosing a lower level of debt to enhance future levels of liquidity and borrowing capacity and therefore to mitigate the negative am-pli…cation e¤ects of previous debt on the economy under crisis. The SP planner equilibrium can be implemented in a decentralized economy by means of a macro-prudential tax (i.e.…”

Financial crises, debt volatility and optimal taxes

“…The model is based on that used by Parra-Polania and Vargas (2014) to di¤erentiate the optimal tax on capital in ‡ows by debt-risk pro…le. They intend to capture the fact that debt is subject to uncertainty and its real value may change from the moment it is acquired until it is repaid.…”

“…First, in our model production is endogenous and, in that sense, we follow Benigno et al (2013). Second, we follow Parra- Polania and Vargas (2014) in modifying the …nancial constraint to incorporate a fact neglected by the traditional constraint, that is, the e¤ect of previous liabilities on the borrowing capacity. A lender will not regard two people with the same income but di¤erent levels of previous debt as equals.…”