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Capital flight, external debt, and domestic policies

  • Michael P. Dooley
  • Kenneth M. Kletzer

The international debt crisis of 1982 revealed that unrecorded private capital outflows from developing countries occurred simultaneously with borrowing from international commercial banks. Current interest in capital flight has been generated by the possibility that the resurgence of private capital inflows to these countries may be limited to the return of flight capital. A simple public finance model shows that simultaneous capital outflows and inflows can be explained as the result of private international arbitrage of domestic policies. The paper discusses the welfare consequences of gross two-way capital flows that take advantage of opportunities to avoid taxation or generate subsidy income.

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File URL: http://www.frbsf.org/publications/economics/review/1994/94-3_29-37.pdf
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Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

Volume (Year): (1994)
Issue (Month): ()
Pages: 29-37

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Handle: RePEc:fip:fedfer:y:1994:p:29-37:n:3
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  1. Carlos F. Diaz-Alejandro, 1984. "Latin American Debt: I Don't Think We Are in Kansas Anymore," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 15(2), pages 335-403.
  2. Etro, Federico & Ageloni, Ignazio & Alesina, Alberto, 2005. "International Unions," Scholarly Articles 4553008, Harvard University Department of Economics.
  3. Alberto Alesina & Guido Tabellini, 1988. "External Debt, Capital Flight and Political Risk," UCLA Economics Working Papers 538, UCLA Department of Economics.
  4. Claessens, Stijn & Naude, David, 1993. "Recent estimates of capital flight," Policy Research Working Paper Series 1186, The World Bank.
  5. Gooptu, Sudarshan, 1993. "Portfolio investment flows to emerging markets," Policy Research Working Paper Series 1117, The World Bank.
  6. Michael P. Dooley, 1988. "Capital Flight: A Response to Differences in Financial Risks," IMF Staff Papers, Palgrave Macmillan, vol. 35(3), pages 422-436, September.
  7. Assaf Razin & Efraim Sadka, 1989. "Optimal Incentives to Domestic Investment in the Presence of Capital Flight," NBER Working Papers 3080, National Bureau of Economic Research, Inc.
  8. Jonathan Eaton, 1987. "Public Debt Guarantees and Private Capital Flight," NBER Working Papers 2172, National Bureau of Economic Research, Inc.
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