Abstract
| Original language | English |
|---|---|
| Place of Publication | Tilburg |
| Publisher | Macroeconomics |
| Number of pages | 31 |
| Volume | 2007-91 |
| Publication status | Published - 2007 |
Publication series
| Name | CentER Discussion Paper |
|---|---|
| Volume | 2007-91 |
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Keywords
- Dual exchange rate systems
- capital controls
- emerging markets
- financial repression
- optimal tax policy
Cite this
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Capital Controls and Foreign Investor Subsidies Implicit in South Africa's Dual Exchange Rate System. / van der Windt, P.C.; Schaling, E.; Huizinga, H.P.
Tilburg : Macroeconomics, 2007. (CentER Discussion Paper; Vol. 2007-91).Research output: Working paper › Discussion paper › Other research output
TY - UNPB
T1 - Capital Controls and Foreign Investor Subsidies Implicit in South Africa's Dual Exchange Rate System
AU - van der Windt, P.C.
AU - Schaling, E.
AU - Huizinga, H.P.
N1 - Pagination: 31
PY - 2007
Y1 - 2007
N2 - Both in theory and practice, capital controls and dual exchange rate systems can be part of a country's optimal tax policy. We first show how a dual exchange rate system can be interpreted as a tax (or subsidy) on international capital income. We show that a dual exchange rate system, with separate commercial and financial exchange rates, drives a wedge between the domestic and foreign returns on comparable assets. As a borrower, the government itself is a direct beneficiary. Secondly, based on data from South Africa, we present empirical evidence of this revenue implicit in a dual exchange rate system; a revenue that amounted to as much as 0.1 percent of GDP for the South African government. However, this paper also shows that both the capital controls and the dual exchange rate system in South Africa gave rise to many perverse unanticipated e¤ects. The latter may render capital controls and dual exchange rate systems unattractive in the end and, thereby, provides a rationale for the recent trend in exchange rate liberalization and unification.
AB - Both in theory and practice, capital controls and dual exchange rate systems can be part of a country's optimal tax policy. We first show how a dual exchange rate system can be interpreted as a tax (or subsidy) on international capital income. We show that a dual exchange rate system, with separate commercial and financial exchange rates, drives a wedge between the domestic and foreign returns on comparable assets. As a borrower, the government itself is a direct beneficiary. Secondly, based on data from South Africa, we present empirical evidence of this revenue implicit in a dual exchange rate system; a revenue that amounted to as much as 0.1 percent of GDP for the South African government. However, this paper also shows that both the capital controls and the dual exchange rate system in South Africa gave rise to many perverse unanticipated e¤ects. The latter may render capital controls and dual exchange rate systems unattractive in the end and, thereby, provides a rationale for the recent trend in exchange rate liberalization and unification.
KW - Dual exchange rate systems
KW - capital controls
KW - emerging markets
KW - financial repression
KW - optimal tax policy
M3 - Discussion paper
VL - 2007-91
T3 - CentER Discussion Paper
BT - Capital Controls and Foreign Investor Subsidies Implicit in South Africa's Dual Exchange Rate System
PB - Macroeconomics
CY - Tilburg
ER -