NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Public Debt Guarantees and Private Capital Flight

Jonathan Eaton

NBER Working Paper No. 2172 (Also Reprint No. r0932)
Issued in March 1987
NBER Program(s):   ITI   IFM

Significant amounts of private capital have flowed out of several of the more heavily indebted developing countries. This outflow, often called "capital flight ," largely escapes taxation by the borrowing-country government, and has generated concern about the prospects for future servicing of the debt. Imperfect contract enforcement may lead to implicit or explicit government guarantee of foreign debt. The model developed below demonstrates that a government policy of guaranteeing private debt can, in turn, generate more than one outcome. One such outcome replicates the allocation under perfect contract enforcement: national savings is invested domestically and foreign debt is repaid. The tax obligation implied by potential nationalization of private debt, however, can also lead to another outcome in which national capital flees and foreign debt may not be repaid.

download in pdf format
   (399 K)

download in djvu format
   (196 K)

email paper

This paper is available as PDF (399 K) or DjVu (196 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w2172

Published: Eaton, Jonathan. "Public Debt Guarantees and Private Capital Flight," The World Bank Economic Review, Vol. I, No. 3, pp. 377-395. (1987) citation courtesy of

Users who downloaded this paper also downloaded these:
Woodford w5684 Control of the Public Debt: A Requirement for Price Stability?
Dooley and Kletzer w4793 Capital Flight, External Debt and Domestic Policies
Cumby and Levich w2275 On the Definition and Magnitude of Recent Capital Flight
Alesina and Tabellini w2610 External Debt, Capital Flight and Political Risk
Reinhart and Rogoff w15639 Growth in a Time of Debt
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us