32 Pages Posted: 16 May 2000 Last revised: 17 Aug 2010
Date Written: July 1994
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.
Suggested Citation: Suggested Citation
Dooley, Michael P. and Kletzer, Kenneth M., Capital Flight, External Debt and Domestic Policies (July 1994). NBER Working Paper No. w4793. Available at SSRN: https://ssrn.com/abstract=227959