Capital ight

2 Examples

Capital ight, in economics, occurs when assets or

money rapidly ow out of a country, due to an event of
economic consequence. Such events could be an increase
in taxes on capital or capital holders or the government of
the country defaulting on its debt that disturbs investors
and causes them to lower their valuation of the assets in
that country, or otherwise to lose condence in its economic strength.

This leads to a disappearance of wealth, and is usually

accompanied by a sharp drop in the exchange rate of the
aected country - depreciation in a variable exchange rate
regime, or a forced devaluation in a xed exchange rate Ratio of German assets in tax havens to German GDP.[1] The
regime.
Big 7 shown are Hong Kong, Ireland, Lebanon, Liberia,
This fall is particularly damaging when the capital belongs Panama, Singapore, and Switzerland.
to the people of the aected country, because not only
are the citizens now burdened by the loss of faith in the In 1995, the International Monetary Fund (IMF) estieconomy and devaluation of their currency, but probably mated that capital ight amounted to roughly half of the
also their assets have lost much of their nominal value. outstanding foreign debt of the most heavily indebted
This leads to dramatic decreases in the purchasing power countries of the world.
of the countrys assets and makes it increasingly expensive Capital ight was seen in some Asian and Latin Amerito import goods.
can markets in the 1990s. The Argentine economic crisis
of 2001 was in part the result of massive capital ight, induced by fears that Argentina would default on its external
debt (the situation was made worse by the fact that Ar1 Discussion
gentina had an articially low xed exchange rate and was
dependent on large levels of reserve currency). This was
1.1 Legality
also seen in Venezuela in the early 1980s with one years
total export income leaving through illegal capital ight.
Capital ight may be legal or illegal under domestic law.
Legal capital ight is recorded on the books of the entity In the last quarter of the 20th century, capital ight was
or individual making the transfer, and earnings from in- observed from countries that oer low or negative real
terest, dividends, and realized capital gains normally re- interest rate (like Russia and Argentina) to countries that
turn to the country of origin. Illegal capital ight, also oer higher real interest rate (like the Peoples Republic
known as illicit nancial ows, is intended to disappear of China).
from any record in the country of origin and earnings on A 2006 article in The Washington Post gave several exthe stock of illegal capital ight outside of a country gen- amples of private capital leaving France in response to
erally do not return to the country of origin.
the countrys wealth tax. The article also stated, Eric
Pinchet, author of a French tax guide, estimates the
wealth tax earns the government about $2.6 billion a year
1.2 Capital ight within a country
but has cost the country more than $125 billion in capital
ight since 1998.[2]
Capital ight is also sometimes used to refer to the removal of wealth and assets from a city or region within A 2008 paper published by Global Financial Integrity esa country. Post-apartheid South African cities are proba- timated capital ight, also called illicit nancial ows to
countries are some $850 billion to
bly the most visible example of this phenomenon. Nigeria be out of developing
[3]
$1
trillion
a
year.
in particular has been abandoned by business moving to
northern suburbs. The ight of capital from central cities A 2009 article in The Times reported that hundreds of
to the suburbs that ring them was also common through- wealthy nanciers and entrepreneurs had recently ed
out the second half of the twentieth century in the United the United Kingdom in response to recent tax increases,
States.
and had relocated in low tax destinations such as Jersey,
1

Guernsey, the Isle of Man, and the British Virgin Islands.[4]

In May 2012 the scale of Greek capital ight in the wake
of the rst undecided legislative election was estimated
at 4 billion a week[5] and later that month the Spanish
Central Bank revealed 97 billion in capital ight from
the Spanish economy for the rst quarter of 2012.[6]

See also
Sudden stop (economics)
Human capital ight (brain drain)
Tax exporting
Capital strike
Illicit nancial ows

References

[1] Shak Hebous (2011) Money at the Docks of Tax

Havens: A Guide, CESifo Working Paper Series No.
3587, p. 9
[2] Moore, Molly; Old Money, New Money Flee France and
Its Wealth Tax"; Washington Post Foreign Service; July
16, 2006; Page A12
[3] Illicit Financial Flows From Developing Countries: 20022006, Dev Kar and Devon Cartwright-Smith, 2008
[4] Hundreds of bosses ee UK over 50% tax, The Times,
December 13, 2009
[5] Greek Euro exit looms closer as banks crumble
[6] 100 billion in Spanish capital ight and ECB inertia

External links
Capital ight after revolution Anarchist view of capital ight
McLeod, Darryl (2002). Capital Flight. In David
R. Henderson (ed.). Concise Encyclopedia of Economics (1st ed.). Library of Economics and Liberty.
OCLC 317650570, 50016270 and 163149563
European Network on Debt and Development reports, news and links on capital ight.
Global Financial Integrity: Studies and works to curtail illicit capital ight from developing countries.

EXTERNAL LINKS

Text and image sources, contributors, and licenses

6.1

Text

Capital ight Source: https://en.wikipedia.org/wiki/Capital_flight?oldid=668106356 Contributors: Roadrunner, Lightning~enwiki, Robbot, Goodralph, Pablo-ores, Ich, Bender235, Maurreen, Jerryseinfeld, Bobrayner, Scjessey, Nightscream, Ksyrie, Passdoubt, Anwar saadat, Tazmaniacs, IronGargoyle, Catquas, Eastlaw, King of the North East, Djstreet, Cydebot, R'n'B, Funandtrvl, Ravensre, Grundle2600,
Rinconsoleao, The Thing That Should Not Be, Dthomsen8, Cowan50, Realdoors44, MrOllie, Lightbot, Luckas-bot, Yobot, AnomieBOT,
Eurodad Brussels, Xqbot, Srich32977, AnnH36, Howsa12, Operdyne7, Surv1v4l1st, Weetoddid, Dinamik-bot, Beyond My Ken, Ocaasi,
Erianna, EdoBot, ClueBot NG, KLBot2, PhnomPencil, Onepebble, Frosty, Cupco, Manybytes, Okramprasantasingh and Anonymous: 29

6.2

Images

File:German_GDP_in_tax_havens.png Source: https://upload.wikimedia.org/wikipedia/commons/a/af/German_GDP_in_tax_havens.

png License: Public domain Contributors: Money at the Docks of Tax Havens: A Guide, CESifo Working Paper Series No. 3587, p. 9
Original artist: Shak Hebous, Goethe University Frankfurt, Faculty of Economics and Business Administration

6.3

Content license

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