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α: calibrated so average coauthorship-adjusted count equals average raw count
Capital controls may be justified as a policy to combat a financial crisis. But for large economies, capital controls may have substantial spillovers to the rest of the world. We investigate the case for capital controls in a large open economy, when domestic financial constraints may bind during a crisis. When the crisis country is indebted, it must trade off the desire to tax inflows to improve the terms of trade and tax outflows to ease financial constraints. This trade-off renders noncooperative use of capital controls ineffective as crisis management policy. Effective use of capital controls for crisis management requires international cooperation.