Financing Institutions for Democracy, Economic Globalization and Terrorism: George Soros (2002)

Capital flight occurs when assets or money rapidly flow out of a country because of that country's recent increase in taxes, tariffs, labor costs, or other unfavorable financial conditions such as government debt defaulting, which disturb investors. This leads to a sometimes very rapid disappearance of wealth, and is usually accompanied by a sharp drop in the exchange rate of the affected country, leading in turn to depreciation in a variable currency exchange rate regime, or a forced devaluation under fixed exchange rates. This can be particularly damaging when the capital belongs to the people of the affected country, because not only are the citizens now burdened by the loss of faith in the economy and devaluation of their currency, but probably also their assets have lost much of their nominal value. This leads to dramatic decreases in the purchasing power of the country's assets and makes it increasingly expensive to import goods. A 2008 paper published by Global Financial Integrity estimated capital flight, also called illicit financial flows to be "out of developing countries are some $850 billion to $1 trillion a year."[30] But capital flight affects developing countries, too. A 2009 article in The Times reported that hundreds of wealthy financiers and entrepreneurs had recently fled the United Kingdom in response to recent tax increases, and had relocated in low tax destinations such as Jersey, Guernsey, the Isle of Man, and the British Virgin Islands.[31] In May 2012 the scale of Greek capital flight in the wake of the first "undecided" legislative election was estimated at €4 billion a week[32] and later that month the Spanish Central Bank revealed €97 billion in capital flight from the Spanish economy for the first quarter of 2012.[33] Capital flight can cause liquidity crises in the affected countries from which capital is flowing, the countries in which investors are trying to liquidate their assets, and other countries involved in international commerce such as shipping and finance. Market participants in need of cash find it hard to locate potential trading partners to sell their assets. This may result either due to limited market participation or because of a decrease in cash held by financial market participants. Thus asset holders may be forced to sell their assets at a price below the long term fundamental price. Borrowers typically face higher loan costs and collateral requirements, compared to periods of ample liquidity, and unsecured debt is nearly impossible to obtain. Typically, during a liquidity crisis, the interbank lending market does not function smoothly either. Increasing international commerce with high barriers to entry, corporate consolidation, tax havens and other methods of tax avoidance, and political corruption have all caused increases in income inequality and wealth concentration: the increasingly unequal distribution of economic assets (wealth) and income within or between global populations, countries, and individuals. Economic inequality varies between societies, historical periods, economic structures or systems (for example, capitalism or socialism), ongoing or past wars, between genders, and between differences in individuals' abilities to create wealth.[34] There are various numerical indices for measuring economic inequality. A prominent one is the Gini coefficient, but there are also many other methods. Economic inequality affects equity, equality of outcome, and equality of opportunity. Although earlier studies considered economic inequality as necessary and beneficial,[36] it has more recently come to be seen as a growing social problem.[37] Early studies suggesting that greater equality inhibits economic growth have been shown to be flawed because they did not account for the many years it can take inequality changes to manifest in growth changes.[38] In fact, one of the most robust and important determinants of sustained economic growth is the level of income inequality.[35] International inequality is inequality between countries. Economic differences between rich and poor countries are very large. According to the United Nations Human Development Report for 2004, the GDP per capita in countries with high, medium and low human development (a classification based on the UN Human Development Index) was 24,806, 4,269 and 1,184 PPP$, respectively (PPP$ = purchasing power parity measured in United States dollars). http://en.wikipedia.org/wiki/Economic_globalization