Debt Relief and Adjustment Incentives: A Theoretical Exploration
21 Pages Posted: 15 Feb 2006
Date Written: April 27, 1988
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: Suggested Citation