Corporate debt and capital controls
Miércoles 17/4, 17.15h
Seminario
Abstract
We study optimal capital controls in a model of large countries with enforcement constraints in which default decisions on international borrowing are determined by firms rather than governments. The constrained efficient allocation can be decentralized as a competitive equilibrium with capital controls taking the form of taxes on international corporate debt issuance of different maturities. The optimal financial-dividend policy implies that firms adopt a bond carry-trade strategy by borrowing abroad to lend domestically, aligning with recent empirical evidence. In terms of implementation, the proposed optimal capital controls can emerge as an equilibrium in a dynamic game in which the behavior of governments, households, and firms are all endogenous. We also conduct a quantitative exercise to explore the welfare implications of economic integration and the properties of optimal capital controls. Firstly, we investigate how optimal taxes should be set over the business cycle. And secondly, we examine the optimal taxation of corporate debt with different maturities.
*Jointly written with Emilio Espino
Constantino Hevia
Ph.D. in Economics. University of Chicago. Associate Professor of Economics, UTDT. His research focuses on macroeconomics, monetary theory and finance and has been published in journals such as Journal of International Economics, Macroeconomic Dynamics, Journal of Applied Econometrics and Journal of International Money and Finance.
We study optimal capital controls in a model of large countries with enforcement constraints in which default decisions on international borrowing are determined by firms rather than governments. The constrained efficient allocation can be decentralized as a competitive equilibrium with capital controls taking the form of taxes on international corporate debt issuance of different maturities. The optimal financial-dividend policy implies that firms adopt a bond carry-trade strategy by borrowing abroad to lend domestically, aligning with recent empirical evidence. In terms of implementation, the proposed optimal capital controls can emerge as an equilibrium in a dynamic game in which the behavior of governments, households, and firms are all endogenous. We also conduct a quantitative exercise to explore the welfare implications of economic integration and the properties of optimal capital controls. Firstly, we investigate how optimal taxes should be set over the business cycle. And secondly, we examine the optimal taxation of corporate debt with different maturities.
*Jointly written with Emilio Espino
Constantino Hevia
Ph.D. in Economics. University of Chicago. Associate Professor of Economics, UTDT. His research focuses on macroeconomics, monetary theory and finance and has been published in journals such as Journal of International Economics, Macroeconomic Dynamics, Journal of Applied Econometrics and Journal of International Money and Finance.