TY  - JOUR
AU  - Alesina,Alberto
AU  - Tabellini,Guido
TI  - External Debt, Capital Flight and Political Risk
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2610
PY  - 1988
Y2  - June 1988
UR  - http://www.nber.org/papers/w2610
L1  - http://www.nber.org/papers/w2610.pdf
N1  - Author contact info:
Alberto F. Alesina
Department of Economics
Harvard University
Littauer Center 210
Cambridge, MA 02138
Tel: 617/495-8388
Fax: 617/495-7730
E-Mail: aalesina@harvard.edu

Guido Tabellini
IGIER Universita' Bocconi
Via Roentgen 1
20136 Milano
Italy
Tel: 39 2 583 6 3305; fax 3302
E-Mail: guido.tabellini@unibocconi.it
AB  - This paper provides an explanation of the simultaneous occurrence of large accumulation of external debt, private capital outflow and relatively low domestic capital formation in developing countries. We consider a general equilibrium model in which two types of government with conflicting distributional goals randomly alternate in office. Uncertainty over the fiscal policies of future governments generates private capital flight and small domestic investment. This political uncertainty also provides the incentives for the current government to over accumulate external debt. The model also predicts that left wing governments are more inclined to impose restrictions on capital outflows than right wing governments. Finally, we examine how political uncertainty affects the risk premium charged by lenders and how debt repudiation may occur after a change of political regime.
ER  -