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Regular version of the site

Financial Repression: a Positive Approach

Student: Kirill Chernov

Supervisor: Sergey E. Pekarski

Faculty: Faculty of Economic Sciences

Educational Programme: Economics (Bachelor)

Final Grade: 10

Year of Graduation: 2020

Many emerging countries have actively applied financial repression, despite the possible negative consequences of this policy for the economy. This paper provides a political economy explanation for why financial repression and the creation of interest groups in the form of partially state-owned entities can be an optimal policy for a populist state which is concerned with creating of electoral support and with increasing of state revenues. Non-market debt allocation leads to a higher loan interest rate resulting in financial underdevelopment. Therefore, firms, which are more sensitive to external financing, suffer, and the partially state-owned entity gets higher profit due to restricted competition. Thus, the state raises revenues from higher dividends and provides itself with political support by increasing revenues of interest groups.

Full text (added May 14, 2020)

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