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Tax Credits for Debt Reduction

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  • Michael P. Dooley
  • Elhanan Helpman

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.

Suggested Citation

  • Michael P. Dooley & Elhanan Helpman, 1989. "Tax Credits for Debt Reduction," NBER Working Papers 3137, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3137
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    1. Froot, Kenneth A, 1989. "Buybacks, Exit Bonds, and the Optimality of Debt and Liquidity Relief," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 49-70, February.
    2. Dooley, Michael P, 1989. "Debt Relief and Leveraged Buy-Outs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 71-75, February.
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    Cited by:

    1. Amnon Levy, 1997. "Sovereign debt: Reputation, seizure and reputation," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 21(1), pages 69-79, March.
    2. Michael P. Dooley, 1994. "A Retrospective on the Debt Crisis," NBER Working Papers 4963, National Bureau of Economic Research, Inc.

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