Debt Relief and Adjustment Incentives: A Theoretical Exploration

21 Pages Posted: 15 Feb 2006

See all articles by W. Max Corden

W. Max Corden

University of Melbourne - Department of Economics

Date Written: April 27, 1988

Abstract

The purpose of this paper is to analyze the argument that debt relief would increase the incentive of a debtor country to make an adjustment effort (to invest) and that for this reason creditors may benefit by granting relief. It is shown that there are actually opposing incentive effects of debt relief and that the argument could be valid in particular circumstances. A distinction is made between exogenous and endogenous relief, the latter compelled by low capacity to pay caused by low investment earlier.

JEL Classification: 433

Suggested Citation

Corden, W. Max, Debt Relief and Adjustment Incentives: A Theoretical Exploration (April 27, 1988). IMF Working Paper No. 88/36. Available at SSRN: https://ssrn.com/abstract=884735

W. Max Corden (Contact Author)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

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