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Hoarding International Reserves Versus a Pigovian Tax-Cum-Subsidy Scheme: Reflections on the Deleveraging Crisis of 2008-9, and a Cost Benefit Analysis / Joshua Aizenman.
- Format:
- Book
- Author/Creator:
- Aizenman, Joshua.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w15484.
- NBER working paper series no. w15484
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- Hoarding International Reserves Versus a Pigovian Tax-Cum-Subsidy Scheme
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2009.
- Summary:
- We outline the case for supporting self-insurance by imposing a tax on external borrowing in a model of an emerging market. Entrepreneurs finance tangible investments via bank intermediation of foreign borrowing, exposing the economy to negative fire-sale externalities at times of deleveraging; a risk that increases with the ratio of aggregate external borrowing to international reserves. Price taking economic agents ignore their marginal impact on the expected cost of a deleveraging crisis. The optimal borrowing tax reduces the distorted activity, external borrowing, and induces borrowers to co-finance the precautionary hoarding of international reserves.
- Notes:
- Print version record
- November 2009.
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