Equity-based financing is placed at a disadvantage to debt-based financing. Admittedly, reforming business taxation is notoriously difficult and would require a strong political commitment. Also, efficiency improvements in business taxation often go hand in hand with revenue shortfalls or acute uncertainty over the fiscal effects of legal changes. Of course, financial stability considerations are only of secondary importance in the field of business taxation.
These flows have exhibited considerable volatility, imparting macroeconomic instability in the event of sudden stops and reversals, eroding competitiveness and complicating the setting of macroeconomic policies. Policy prescriptions with respect to capital flows should be even-handed.