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The Carrot and Stick Approach to Debt Relief : Overcoming Moral Hazard

Listed author(s):
  • Marin Ferry

    ()

    (PSL, Université Paris-Dauphine, LEDa, IRD, UMR DIAL)

(english) Using an event-study framework, this paper empirically assesses the impact of debt relief on government's tax effort. Our results suggest that having reached the decision point leads to higher level of tax effort. But our findings also reveal that HIPCs' governments seem to adopt moral hazard behavior (especially when institutional quality is weak) since they deploy the bulk of their tax effort before the decision point in order to get debt relief and then loosen it as they come close to the end of the debt relief process. However, post-debt relief tax effort remains significantly larger than the level recorded before the anticipatory effects took place, thus emphasizing an overall positive effect of the Enhanced HIPC initiative. _________________________________ (français) Cet article évalue l'impact des initiatives d'allègement de la dette multilatérale sur l'effort fiscal des gouvernements bénéficiaires. Les résultats de cette étude indiquent qu'avoir atteint le “point de décision” de l'initiative PPTE conduit les gouvernements concernés à enregistrer un effort fiscal plus important que s'ils n'avaient atteint ce point. Mais des tests additionnels révèlent également un certain aléa moral de la part de ces derniers puisqu'ils semblent déployer l'essentiel de leur effort fiscal dans le but d'obtenir des réductions de dette avant de réduire progressivement ce même effort au fur et à mesure qu'ils s'approchent du “point d'achèvement” et donc de la fin du processus PPTE. Cependant, malgré ce relâchement, le niveau d'effort fiscal observé en fin de parcours reste supérieur à celui enregistré avant que l'effet d'anticipation ne prenne place, permettant ainsi de conclure à un effet global positif de l'initiative PPTE.

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File URL: http://www.dial.ird.fr/media/ird-sites-d-unites-de-recherche/dial/documents/publications/doc_travail/2015/2015-14
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Paper provided by DIAL (Développement, Institutions et Mondialisation) in its series Working Papers with number DT/2015/14.

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Length: 48 pages
Date of creation: Sep 2015
Handle: RePEc:dia:wpaper:dt201514
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