This paper models capital flows in terms of an infinite horizon continuous time portfolio theoretic framework. Both the inter-temporal equilibrium mix of domestic and foreign assets and an equilibrium mix of flows of funds to domestic and foreign assets are derived. These results allow us to demonstrate that Tobin taxes, at best, have a transitory (though often ambiguous) effect, and prove to be both unsustainable and of undesirable long run impact.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics