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Capital Flight, External Debt and Domestic Policies

  • Michael P. Dooley
  • Kenneth M. Kletzer

It is now well documented that capital flight has been a dominant feature of capital movements between developing and industrial countries. Since 1988 reductions in the stock of flight capital more than account for private capital flows to emerging markets. This suggests that what appears to be a diversification of portfolios of residents of developed countries may be a restoration of 'home bias' in the portfolios of residents of developing countries. We show that changes in the stock of capital flight can increase or decrease welfare depending on the structure of distortionary taxes and subsidies on capital income and the effects of capital flight on the tax base.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4793.

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Date of creation: Jul 1994
Date of revision:
Publication status: published as Economic Review, Federal Reserve Bank of San Francisco, Number 3, 1994, pp. 29-37.
Handle: RePEc:nbr:nberwo:4793
Note: IFM
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  1. 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.
  2. Alesina, Alberto F & Angeloni, Ignazio & Etro, Federico, 2003. "International Unions," CEPR Discussion Papers 3913, C.E.P.R. Discussion Papers.
  3. Alberto Alesina & Guido Tabellini, 1988. "External Debt, Capital Flight and Political Risk," UCLA Economics Working Papers 538, UCLA Department of Economics.
  4. Jonathan Eaton, 1987. "Public Debt Guarantees and Private Capital Flight," NBER Working Papers 2172, National Bureau of Economic Research, Inc.
  5. Gooptu, Sudarshan, 1993. "Portfolio investment flows to emerging markets," Policy Research Working Paper Series 1117, The World Bank.
  6. 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.
  7. Claessens, Stijn & Naude, David, 1993. "Recent estimates of capital flight," Policy Research Working Paper Series 1186, The World Bank.
  8. 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.
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