Foreign Debt, Capital Controls, and Secondary Markets: Theory and Evidence from Nazi Germany

Andrea Papadia, Claudio A. Schioppa

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We investigate how internal distribution motives can affect the implementation of an important macroeconomic policy: capital controls. To do this, we study one of history’s largest debt repatriations, which took place under strict capital controls in 1930s Germany, providing a wealth of quantitative and historical evidence. We show that the authorities kept private repatriations under strict control, thus avoiding detrimental macroeconomic effects, while allowing discretionary repatriations in order to reap internal political benefits. We formalize this mechanism in a model in which elite capture can affect optimal debt repatriations and the management of official reserves under capital controls.
Original languageEnglish
Number of pages39
JournalJournal of Political Economy
Early online date9 May 2024
Publication statusE-pub ahead of print - 9 May 2024

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