The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper proposes a price-based measure to mitigate the destabilizing impact of the volatility of global capital movements on the domestic economy of a country pursuing sound economic policies. The measure is a withholding tax on all private capital inflows, with a credit and refund provision that operates within the administrative framework of the existing domestic tax system to relieve noncapital inflows from the tax. This withholding tax, which is substantially more difficult to evade than the much-discussed alternative of imposing non-remunerated reserve requirements, can be implemented with little additional costs to the taxpayers and the tax authorities.