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In for a Penny, In for a 100 Billion Pounds: Quantifying the Welfare Benefits from Debt Relief

  • Mark Wright

    (UCLA)

  • Christine Richmond

    (International Monetary Fund)

  • Daniel Dias

    (University of Illinois at Urbana-Champaign and CEMAPRE)

Since 1989, creditor countries have provided debt relief to developing countries worth more than 100 billion US dollars. Prominent lobby groups are campaigning for a further 400 billion US dollars in debt relief to be provided in the near future. How much could developing country’s gain from debt relief? How costly is it to provide debt relief? Would debt relief increase social welfare? And if so, to which countries should it be most urgently directed? In this paper, we develop a framework for measuring the marginal welfare gain from debt relief and indicate when this marginal measure can be used to estimate the total welfare benefit of debt relief. We then apply this framework to data on the debts of 72 developing countries to form an estimate of the global social welfare benefits of debt forgiveness.

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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 646.

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Date of creation: 2013
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Handle: RePEc:red:sed013:646
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  1. Chauvin, Nicolas Depetris & Kraay, Aart, 2006. "Who gets debt relief ?," Policy Research Working Paper Series 4000, The World Bank.
  2. Altman, Edward I, 1989. " Measuring Corporate Bond Mortality and Performance," Journal of Finance, American Finance Association, vol. 44(4), pages 909-22, September.
  3. Jeromin Zettelmeyer & Federico Sturzenegger, 2005. "Haircuts; Estimating Investor Losses in Sovereign Debt Restructurings, 1998-2005," IMF Working Papers 05/137, International Monetary Fund.
  4. Serkan Arslanalp & Peter Blair Henry, 2005. "Is Debt Relief Efficient?," Journal of Finance, American Finance Association, vol. 60(2), pages 1017-1051, 04.
  5. Easterly, William, 2002. "How Did Heavily Indebted Poor Countries Become Heavily Indebted? Reviewing Two Decades of Debt Relief," World Development, Elsevier, vol. 30(10), pages 1677-1696, October.
  6. Daniel A. Dias & Christine J. Richmond & Mark L.J. Wright, 2011. "The Stock of External Sovereign Debt: Can We Take the Data At 'Face Value'?," NBER Working Papers 17551, National Bureau of Economic Research, Inc.
  7. Christina Daseking & Robert Powell, 1999. "From toronto Terms to the HIPC Initiative; A Brief History of Debt Relief for Low-Income Countries," IMF Working Papers 99/142, International Monetary Fund.
  8. Nicolas Depetris Chauvin & Aart Kraay, 2005. "What Has 100 Billion Dollars Worth of Debt Relief Done for Low- Income Countries?," International Finance 0510001, EconWPA.
  9. Harberger, Arnold C, 1971. "Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay," Journal of Economic Literature, American Economic Association, vol. 9(3), pages 785-97, September.
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