Capital flight

Flight of capital describes the extensive and sudden transfer of assets , money, precious metals or material assets abroad or the decline in demand for assets in the domestic economy .

General

In the event of inflation, the goal of capital flight is to maintain value or otherwise avoid domestic taxes (see also tax avoidance , tax evasion , tax evasion ). The phenomenon of capital flight is therefore regularly linked to government action. Flight of capital can often be seen as “ voting with your feet ”, as the production factor capital can be transferred faster than other production factors due to its high mobility . If economic subjects expect a change in the (tax) legal system that is unfavorable for them, they may react by withdrawing their capital.

The flight of capital shown in the capital account says - viewed alone - nothing about the economic situation and development of an economy , only the balance of payments , which contains all economic sub-balances , is relevant . To illustrate this using the example of the German economy: The export strength of the German economy makes it possible for a large number of goods to be exported and for a lot of money to flow into the country ( trade surplus ). This in turn makes it possible for a lot of money to flow abroad for other things, e.g. B. Contributions to the EU and the UN (shown in the transfer balance sheet ), expenditure by German tourists abroad (shown in the service balance sheet ), loans to other countries (e.g. developing countries) and investments in foreign companies (both shown in the Financial account).

The decision in which country a company invests or in which country a person settles can be influenced by all location factors. These include, for example, the transport infrastructure , the communication infrastructure, the legal system , the currency system , the banking system , the demand of potential buyers of goods, the qualifications of the workforce, the number of sick days and days on strike, etc. The main goal of foreign investments by German companies is often development new markets. Production is happy to go where goods can be sold.

In the past there were numerous bureaucratic obstacles to capital flight in many - including western - countries. For example, from around 1945 to the early 1970s there were largely rigid exchange rates between most Western countries (see the Bretton Woods system ); the central banks had to defend the fixed exchange rates.

A flight of capital is occasionally dramatized in the media.

For example, Luxembourg was considered an economy into which a lot of German capital came for decades. When billions of euros (in euros ) were transferred from Germany to Luxembourg accounts every year , investment capital was by no means lost, as was sometimes claimed.

In the small state of Luxembourg, such billions of euros cannot be invested in the real economy at an interest rate (but they can be invested on the Luxembourg capital market ); some of the money flows - directly or indirectly - back to Germany (see also economic cycle ).

In Luxembourg, some corporate taxes are lower; Luxembourg banks have (or had) a competitive advantage compared to German banks.

The EU was and is striving to bring its tax systems into line with one another through tax harmonization measures in order to facilitate the creation of an internal market and / or to avoid tax competition . It has also been negotiating with the non-EU countries Switzerland and Liechtenstein for years in order to "dry out" these so-called tax havens .

Reasons for capital flight

• Fear of theft
• Fear of detection of criminal activity
• Fear of expropriation by the state
• Property taxation (e.g. high wealth tax )
• (subjectively perceived) control justice
• Political instability

Potential capital refugees

• Rich people ( tax evasion )
• Criminals (theft, drug trafficking, illegal arms trade )
• People close to the government (in anticipation of political exile)
• Central banks ( foreign exchange market interventions )
• Oppositionists
• Savers ( diversification of assets across several countries, banks and other debtors)

Well-known examples

This article or the following section is not adequately provided with supporting documents ( e.g. individual evidence ). Information without sufficient evidence could be removed soon. Please help Wikipedia by researching the information and including good evidence.

Many Greeks have deposited euro amounts in banks abroad since Greece joined the euro area . This is made easier by online banking. They have little confidence in Greek banks, which have bought Greek government bonds to a greater extent than other banks. The drama of the Greek national debt has been public knowledge since around autumn 2009; In May 2010, Greece only escaped bankruptcy through an unsecured EUR 80 billion loan from other EU countries (see Greek sovereign debt crisis ).

Capital flight as a means of pressure

In many countries that belong to the so-called "economic periphery", (financial and tax) policy was and is accompanied by a threat of capital flight. The uncertainty in the individual states about the behavior of the other states results in an effect that is described in the specialist literature as "Race to the bottom". What is meant is a race for the lowest taxes and thus the most favorable location factors (for capital owners).

Individual evidence

1. ↑ see Otmar Emminger : D-Mark, Dollar, Currency Crises. Memories of a former Bundesbank President. Deutsche Verlags-Anstalt, Stuttgart 1986, ISBN 3-421-06333-8 .