FINANCIAL REPRESSION AND FISCAL-POLICY

This paper develops a simulation model to assess the consequences of g overnment's trying to raise revenues through financial repression in d eveloping countries. The measures of financial repression studied are (1) government borrowing from the banking sector to finance its budget deficit (2) government borrowing from the banks at lower rates and (3 ) the government levying a tax on interest income from government bond s. The policies appear to be detrimental to private capital formation, while the effect on government expenditures is repression-measure spe cific. (C) 1997 Society for Policy Modeling. Published by Elsevier Sci ence Inc.