Russia's foreign debt problems worsened substantially after the financial crisis of 1998. The paper focuses on the key role of the government in servicing foreign debt and promoting institution building by showing how foreign debt influences the choice between official and unofficial taxation. The enterprise sector is assumed to reallocate its resources between domestic investment and capital flight. It is discussed under which conditions debt rescheduling may create incentives for the government to promote institution building. The results of this paper shed light on the conditions under which the recent agreement with the London Club to write off substantial amounts of former Soviet debt can be successful.
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number
978.
Find related papers by JEL classification: F34 - International Economics - - International Finance - - - International Lending and Debt Problems H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management
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