CP Workshop – Dorothy Kronick, University of Pennsylvania

DateMarch 6, 2017

Time12:30pm to 2:00pm

Location
4357 Bunche Hall 

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Abstract:What is the political logic of dual exchange rates? Governments often invoke a populist justification, arguing that dual exchange rates protect the prices of imported consumer goods. But critics charge that dual exchange rates do little to protect consumer prices, instead creating arbitrage opportunities for powerful elites. We develop a model of the government’s tradeoff between these two constituencies (consumers vs. arbitrageurs). We then estimate the parameters of the model with an original firm-level data set from Venezuela, where, between 2003 and 2012, the government used dual exchange rates to subsidize approximately 215 billion dollars of imports at a fiscal cost of more than 100 billion.  We find that the government rationed access to official-rate currency as if it valued importers nearly as much as consumers. Together with qualitative evidence, we interpret these findings as evidence that importers provided the government with essential political support.Full paper can be found here

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