The Political Economy of Capital Controls

Quality of Bureaucracy and Open-Economy Macro Policies

“…Civil liberty and political freedom (1993) Source: Freedom House, Freedom in the World, Freedom House Survey Team, 1993-1994 CIV is the abbreviation for civil liberties index. Liberties index measures the extent to which people are able to express their opinion openly without fears of reprisals and are protected in doing so by an independent judiciary.…”

The Imf and the Liberalization of Capital Flows

“…26 See World Bank (2004). Table 1 Determinants of Capital Controls Authors Sample Impact on Capital Controls Epstein andSchorr (1992) 16 developed, 1968-86 Independent central bank, fiscal budget (-); left-wing gov't (+) Alesina, Grilli andMilesiFerretti (1994) 20 OECD, 1950-89 Independent central bank (-); fixed exchange rate, stable, durable, and majority governments (+) Grilli and Milesi-Ferretti (1995) 21 developed and 40 developing countries, 1966-89…”

The determination of capital controls: Which role do exchange rate regimes play?

“…Large governments and heavy debt burdens are found to make the existence of capital controls more likely (Grilli and Milesi-Ferretti, 1995;Berger et al, 2001). As far as economic institutions are concerned, central bank independence is found by some studies to be positively associated with capital account openness, supporting the view that an independent central bank makes it difficult for the government to generate seignorage revenue and, hence, less necessary to impose capital controls to secure the tax base for inflation taxes (Alesina et al, 1994;Epstein and Schor, 1992). From the perspective of crises prevention, countries with higher risk of currency crises due to pegged or tightly managed exchange rates or high current account deficits are found to be more prone to impose capital controls (Johnston and Tamirisa, 1998;Berger et al, 2001).…”

“…Several studies include variables reflecting partisan conflicts as determinants of capital controls and find that left-wing governments and majority governments are more likely to impose capital controls (Alesina et al, 1994;Quinn and Inclán, 1997). Many studies find that distortions in the tax system, especially its low efficiency, are a common determinant of capital controls (Milesi-Ferretti, 1998;Dailami, 2001).…”

“…Empirical Evidence 3 Many empirical studies consider only the presence or absence of capital controls and capture it by a dummy variable (Alesina et al, 1994;Grilli and Milesi-Ferretti, 1995). Some studies use a more refined measure of capital account openness proposed by Quinn (1997), which is based on a careful reading of national regulations on international capital transactions and a differentiated coding of various degree of capital control intensity (Quinn and Inclán, 1997;Dailami, 2001).…”