Voluntary Debt Reduction: Incentives and Welfare
In an economy with a debt overhang, investment depends on expected tax rates, but expected tax rates depend on the debt's face value. Therefore investment depends on the face value of debt. This relationship may lead to a positive or negative association between debt and investment. The paper explores the desirability of debt reduction. First, it characterizes circumstances in which debt reduction is desirable from the collective point of view of the creditors. Second, it formulates the forgiveness decision as a noncooperative game among creditors and explores the scope for debt reduction as an outcome of this game.
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Volume (Year): 36 (1989)
Issue (Month): 3 (September)
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jonathan Eaton, 1987.
"Public Debt Guarantees and Private Capital Flight,"
NBER Working Papers
2172, National Bureau of Economic Research, Inc.
- Michael P. Dooley, 1988. "Buy-Backs and Market Valuation of External Debt," IMF Staff Papers, Palgrave Macmillan, vol. 35(2), pages 215-229, June.
- Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-661, September.
- Paul R. Krugman, 1988. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc.
- W. Max Corden, 1988. "An International Debt Facility?," IMF Staff Papers, Palgrave Macmillan, vol. 35(3), pages 401-421, September.
- Claessens, Stijn, 1990. "The debt laffer curve: Some estimates," World Development, Elsevier, vol. 18(12), pages 1671-1677, December.
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