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  • September 2004
  • Article
  • Review of International Economics

Capital Controls: A Political Economy Approach

By: Laura Alfaro
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Abstract

This paper examines the economic consequences of political conflicts that arise when countries implement capital controls. In an overlapping-generations model, agents vote on whether to open or close an economy to capital flows. The young (workers) receive income from wages only while the old (capitalists) receive income from savings only. We characterize the set of stationary equilibria for an infinite horizon game. Assuming dynamic-efficiency, when the median representative is a worker (capitalist), capital-importing countries will open (close) while capital-exporting countries will close (open). These predicted patterns are consistent with data on liberalization policies over time and across various countries.

Keywords

Economy; Voting; Conflict Of Interests; Capital; Government And Politics; Wages; Saving; Forecasting And Prediction

Citation

Alfaro, Laura. "Capital Controls: A Political Economy Approach." Review of International Economics 12, no. 4 (September 2004): 571–590.
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About The Author

Laura Alfaro

General Management
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  • On the Direct and Indirect Real Effects of Credit Supply Shocks By: Laura Alfaro, Manuel García-Santana and Enrique Moral-Benito
  • Latam Airlines and COVID-19: Seeking Bankruptcy Protection in the United States By: Laura Alfaro
  • Reserve Accumulation, Sovereign Debt, and Exchange Rate Policy By: Laura Alfaro and Fabio Kanczuk
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