Optimal tax and debt policy with endogenously imperfect creditworthiness

Joshua Aizenman, Michael Gavin, Ricardo Hausmann

Research output: Contribution to journalArticlepeer-review

21 Scopus citations

Abstract

This paper studies the patterns of optimal tax rates and borrowing in a developing country characterized by a costly tax collection. Its access to the international credit market is determined by the efficiency of the tax system, the relative bargaining power of creditors, and the outstanding debt. Country risk modifies considerably the pattern of taxes and borrowing in recessions. The tax rate exhibits strong counter-cyclical patterns in economies operating close to the credit ceiling, whereas the tax rate exhibits very few cyclical patterns in economies operating on the elastic portion of the supply of credit, where country risk factors are absent.

Original languageEnglish
Pages (from-to)367-395
Number of pages29
JournalJournal of International Trade and Economic Development
Volume9
Issue number4
DOIs
StatePublished - 1 Jan 2000
Externally publishedYes

Keywords

  • Borrowing constraints
  • Credit ceilings
  • Optimal tax

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Development
  • Aerospace Engineering

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