TY  - JOUR
AU  - Jeanne,Olivier
AU  - Korinek,Anton
TI  - Managing Credit Booms and Busts: A Pigouvian Taxation Approach
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16377
PY  - 2010
Y2  - September 2010
UR  - http://www.nber.org/papers/w16377
L1  - http://www.nber.org/papers/w16377.pdf
N1  - Author contact info:
Olivier Jeanne
Department of Economics
Johns Hopkins University
454 Mergenthaler Hall
3400 N. Charles Street
Baltimore, MD 21218
Tel: 410/516-7604
Fax: 410/516-7600
E-Mail: ojeanne@jhu.edu

Anton Korinek
Tydings Hall 4118F
Department of Economics
University of Maryland
College Park, MD 20742
Tel: (917) 543-5237
E-Mail: anton@korinek.com
AB  - We study a dynamic model in which the interaction between debt accumulation and asset prices magnifies credit booms and busts. We find that borrowers do not internalize these feedback effects and therefore suffer from excessively large booms and busts in both credit flows and asset prices. We show that a Pigouvian tax on borrowing may induce borrowers to internalize these externalities and increase welfare. We calibrate the model by reference to (i) the US small and medium-sized enterprise sector and (ii) the household sector, and find the optimal tax to be countercyclical in both cases, dropping to zero in busts and rising to approximately half a percentage point of the amount of debt outstanding during booms.
ER  -