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Debt Sustainability for Low-Income Countries: A Review of Standard and Alternative Concepts

  • Cassimon, Denis
  • Moreno-Dodson, Blanca
  • Wodon, Quentin

Governments in low-income countries have the difficult task of making wide-ranging decisions about public spending, taxation, and borrowing. Although we can analyze at length how both public spending and taxation can be designed and implemented to contribute to growth and poverty reduction, the biggest challenge that most developing countries face is in determining how much they can borrow without jeopardizing their long-term prospects. The objective of this paper is to introduce the key issues involved in debt sustainability analysis. We review the main approaches developed in the literature, starting from the traditional fiscal and external approaches and covering recent alternative frameworks, such as the debt overhang analysis and the human development approach (especially as it relates to the funding requirements for achieving the Millennium Development Goals).

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11077.

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Date of creation: Jan 2008
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Publication status: Published in Public Finance for Poverty Reduction: Concepts and Case Studies from Africa and Latin America (edited by Blanca Moreno-Dodson and Quentin Wodon, published in World Bank Directions in Development) (2008): pp. 21-56
Handle: RePEc:pra:mprapa:11077
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  1. Claessens, Stijn, 1990. "The debt laffer curve: Some estimates," World Development, Elsevier, vol. 18(12), pages 1671-1677, December.
  2. Kraay, Aart & Nehru, Vikram, 2004. "When is external debt sustainable?," Policy Research Working Paper Series 3200, The World Bank.
  3. Chauvin, Nicolas Depetris & Kraay, Aart, 2006. "Who gets debt relief ?," Policy Research Working Paper Series 4000, The World Bank.
  4. berlage, Lodewijk & cassimon, Danny & dreze, Jacques & Reding, Paul, 2003. "Prospective Aid and Indebtedness Relief: A Proposal," World Development, Elsevier, vol. 31(10), pages 1635-1654, October.
  5. Raffer, Kunibert, 1990. "Applying chapter 9 insolvency to international debts: An economically efficient solution with a human face," World Development, Elsevier, vol. 18(2), pages 301-311, February.
  6. William Easterly, 1999. "When is fiscal adjustment an illusion?," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 55-86, 04.
  7. Helene Poirson Ward & Luca Antonio Ricci & Catherine A. Pattillo, 2002. "External Debt and Growth," IMF Working Papers 02/69, International Monetary Fund.
  8. Ley, Eduardo, 2009. "Fiscal (and external) sustainability," MPRA Paper 13693, University Library of Munich, Germany.
  9. Peter Hjertholm, 2003. "Theoretical and empirical foundations of HIPC debt sustainability targets," Journal of Development Studies, Taylor & Francis Journals, vol. 39(6), pages 67-100.
  10. Cuddington, John T., 1997. "Analyzing the sustainability of fiscal deficitsin developing countries," Policy Research Working Paper Series 1784, The World Bank.
  11. Helene Poirson Ward & Luca Antonio Ricci & Catherine A. Pattillo, 2004. "What Are the Channels Through Which External Debt Affects Growth?," IMF Working Papers 04/15, International Monetary Fund.
  12. Cohen, Daniel, 1996. "The sustainability of African debt," Policy Research Working Paper Series 1621, The World Bank.
  13. Paul R. Krugman, 1988. "Financing vs. Forgiving a Debt Overhang," NBER Working Papers 2486, National Bureau of Economic Research, Inc.
  14. Nicolas Depetris Chauvin & Aart Kraay, 2005. "What Has 100 Billion Dollars Worth of Debt Relief Done for Low- Income Countries?," International Finance 0510001, EconWPA.
  15. Nancy Birdsall & John Williamson, 2002. "Delivering on Debt Relief: From IMF Gold to a New Aid Architecture," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 337.
  16. Jeffrey D. Sachs, 2002. "Resolving the Debt Crisis of Low-Income Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(1), pages 257-286.
  17. Yan Sun, 2004. "External Debt Sustainability in HIPC Completion Point Countries," IMF Working Papers 04/160, International Monetary Fund.
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