Financial Repression and Laffer Curves

10 Pages Posted: 11 Dec 2015

See all articles by Kanat Isakov

Kanat Isakov

National Research University Higher School of Economics (Moscow)

Sergey Pekarski

National Research University Higher School of Economics (Moscow)

Date Written: November 26, 2015

Abstract

This paper uses a simple calibrated general equilibrium model to evaluate the revenue from financial repression and its impact on Laffer curves for consumption, capital and labor taxes. By imposing a requirement for households to hold public debt with a below-market rate of return the government distorts optimal household allocation and raises extra revenues. Tighter financial repression shifts Laffer curves for labor and consumption down, but increases revenue from capital income taxation. Total budget revenue increases, which allow financing more public goods and can be welfare-improving.

Keywords: financial repression; tax distortions; Laffer curve

JEL Classification: E62; G28; H21; H24; H31; H63

Suggested Citation

Isakov, Kanat and Pekarski, Sergey, Financial Repression and Laffer Curves (November 26, 2015). Higher School of Economics Research Paper No. WP BRP 113/EC/2015, Available at SSRN: https://ssrn.com/abstract=2701807 or http://dx.doi.org/10.2139/ssrn.2701807

Kanat Isakov

National Research University Higher School of Economics (Moscow) ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Sergey Pekarski (Contact Author)

National Research University Higher School of Economics (Moscow) ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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