Tax Credits for Debt Reduction: A Proposal
24 Pages Posted: 15 Feb 2006
Date Written: August 21, 1989
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: Suggested Citation