The Welfare Effects Of Controls Over Capital Exports From The United States [antikvár]

THE WELFARE EFFECTS OF CONTROLS OVER CAPITAL EXPORTS FROM THE UNITED STATESFor the past seven years varying degrees of Federal restraint have been applied to lending and investing abroad by residents of the United States. Purchases of long-term foreign securities from foreign residents were, with some exceptions, made subject to the interest-equalization tax as of July 19, 1963. In 1965 this tax was extended to long-term bank lending to foreign residents, and in the same year both financial and nonfinancial corporations were asked to restrain their lending and investing of domestic funds abroad.Although analyses of the balance-of-payments effects of these controls have been published, very little has appeared in the way of rigorous examination of the effects on welfare. Yet such examination is essential if informed judgments are to be made regarding the desirability of the controls either as temporary or permanent devices. The purpose of this essay is to fill a bit of this gap by contributing a qualitative analysis of the welfare effects of the interest-equalization tax (lET) levied on purchases of foreign securities. The discussion is limited to the lET largely to conserve space and for purposes of expository convenience; much of the analysis readily extends to the other Federal restraints on lending and investing abroad. The analysis begins under the simplifying "ideal" assumptions of perfect competidon and no troublesome externalities (or "market failures," in the more general terminology used by Francis Bator in "The Anatomy of Market Failure," Quarterly Journal of Economics, August 1958). However, consideration of the implications of alleged departures from these assumptions constitutes the bulk of the essay.I. PERFECT COMPETITION AND NO MARKET FAILURESUnder these "ideal" assumptions freedom of movement for the factors of production allows the most eificient allocation of the world's resources for any given income distribution, so that from the standpoint of world welfare the argument for freedom of factor movements is essentially the same as that for freedom of commodity movements. The analogy does not end here, however. From the standpoint of national rather than world welfare, the control of capital movements receives