| Abstract: | This paper examines and extends the debate over Roy Hattersley's proposal for a tax on the earnings derived from overseas investments of U.K. residents. Two frameworks are employed to analyse the issue, loanable funds theory and a modern macroeconomic approach stemming from Buiter and Miller. It is concluded that such a tax could be effective in lowering the domestic interest rate and stimulating domestic investment, depending upon the circumstances of its imposition, but that it will also be likely to reduce net exports. Questions are raised concerning the desirability of such a policy if there is no longer a net outflow of loanable funds when a putative future Labour Government reaches power. |
