Journal Article

Capital flight, external debt, and domestic policies

Abstract: 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.

Keywords: Capital movements; Developing countries; Finance, Public;

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Economic Review

Publication Date: 1994

Pages: 29-37

Order Number: 3