Tax Credits for Debt Reduction: A Proposal

24 Pages Posted: 15 Feb 2006

See all articles by Michael P. Dooley

Michael P. Dooley

University of California at Santa Cruz; National Bureau of Economic Research (NBER)

Elhanan Helpman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: August 21, 1989

Abstract

The incentives for domestic investment in debtor countries are influenced by the terms of their external obligations and by the system of taxation utilized to provide government revenue for debt payments. It is well known that existing debt contracts could be altered to improve the incentives for investment but this has proven difficult to accomplish, perhaps because individual creditors have incentives not to agree to such changes. In this paper we show that a simple tax credit scheme that can be implemented unilaterally by the debtor government can overcome at least some of the inefficiencies caused by existing debt contracts.

JEL Classification: 430, 440

Suggested Citation

Dooley, Michael P. and Helpman, Elhanan, Tax Credits for Debt Reduction: A Proposal (August 21, 1989). IMF Working Paper No. 89/64. Available at SSRN: https://ssrn.com/abstract=884904

Michael P. Dooley (Contact Author)

University of California at Santa Cruz ( email )

Santa Cruz, CA 95064
United States
510-459-3662 (Phone)
510-459-5900 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Elhanan Helpman

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-495-4690 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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