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Working paper

Financial Repression and Laffer Curves

  We use 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 requirement for households to hold public debt with below-market rate of return the government distorts optimal household’s 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 allows financing more public goods that can be welfare-improving.