Capital Flight, External Debt and Domestic Policies
Michael P. Dooley
University of California at Santa Cruz; National Bureau of Economic Research (NBER)
Kenneth M. Kletzer
University of California at Santa Cruz; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
NBER Working Paper No. w4793
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.
Number of Pages in PDF File: 32
Date posted: May 16, 2000
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