Exchange Rates and Taxes / John H. Makin.

Format:

Book

Author/Creator:

Makin, John H.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w1350.

NBER working paper series no. w1350

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1984.

Summary:

This paper demonstrates that different rates of taxation on interest income and exchange gains may bias results of hypothesis testing regarding critical aspects of exchange rate behavior. Two problems are discussed specifically. First, it is shown that omission of tax considerations may bias tests of the uncovered interest parity condition toward acceptance of a "risk premium" hypothesis, conditional on exchange market efficiency. Second it is shown that a rational solution for the exchange rate conditions the relationship between an exchange rate and its determinants on two regimes: (1) tax rates on interest income and foreign exchange gains and losses at home and abroad and (2) the degree of foreign exchange market intervention and sterilization of its effects on the monetary base practiced by central banks.

Notes:

Print version record

May 1984.