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Accounting vs Economics: The Consequences of Balance of Payment Crises

🧵 The TL;DR

Administrative actions to bridge balance of payments deficits, such as curtailing imports, may lead to significant economic consequences due to reduced economic output, increased balance of payment pressures, stronger inflation, and decreased capital flows.

    🔑 Key Points

  • Curtailing imports through administrative restrictions can open multiple auction markets which can lead to corruption and gatekeepers getting rich quick
  • Disruptions to production networks can lead to reduced economic output and further balance of payment pressures
  • Tax revenue elasticity to growth means that strong deficits will cause deflation and capital flight

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