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Aid Effectiveness, Debt Relief and Public Finance Response: Evidence from a Panel of HIPCs

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  • Cassimon, Danny
  • van Campenhout, Bjorn

Abstract

Substantial amounts of debt relief have been granted to a set of low-income countries, as an alternative aid modality. Although the theoretical case for debt relief is firmly established, only empirical analysis can show whether debt relief is indeed a (more) effective mode of aid delivery. We investigate the linkages between debt relief and other fiscal variables such as current expenditure, government investment, taxation and domestic borrowing, in comparison to the effects of grants and concessional loans. We find that the fiscal impact of HIPC debt relief follows fairly complex dynamics. For example, debt relief initially reduces government investment, but the effect becomes positive after two years, well outperforming other modes of aid delivery.

Suggested Citation

  • Cassimon, Danny & van Campenhout, Bjorn, 2007. "Aid Effectiveness, Debt Relief and Public Finance Response: Evidence from a Panel of HIPCs," WIDER Working Paper Series 059, World Institute for Development Economic Research (UNU-WIDER).
  • Handle: RePEc:unu:wpaper:rp2007-59
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    Citations

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    Cited by:

    1. Danny Cassimon & Dennis Essers & Karel Verbeke, 2015. "What to do after the clean slate? Post-relief public debt sustainability and management," BeFinD Working Papers 0103, University of Namur, Department of Economics.
    2. Ibrahim Mohammed Adamu, 2016. "Public Investment in Nigeria. Does External Debt Matter?," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 2(4), pages 120-138, December.
    3. Heylen, Fanny, 2010. "Analyzing the poverty impact of the enhanced Heavily Indebted Poor Countries (HIPC) initiative in Bolivia," Documentos de trabajo 1/2010, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana.
    4. Danny Cassimon & Marin Ferry & Marc Raffinot & Bjorn Van Campenhout, 2017. "Dynamic Fiscal Impact of The Debt Relief Initiatives on African Highly Indebted Poor Countries (HIPCs)," Working Papers hal-01489613, HAL.
    5. Cordella, Tito & Missale, Alessandro, 2013. "To give or to forgive? Aid versus debt relief," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 504-528.
    6. Megersa, kelbesa & Cassimon, Danny, 2016. "Debt Sustainability and direction of trade: What does Africa’s shifting engagement with BRIC and OECD tells us?," MPRA Paper 76581, University Library of Munich, Germany.
    7. Gravier-Rymaszewska, Joanna, 2012. "How Aid Supply Responds to Economic Crises: A Panel VAR Approach," WIDER Working Paper Series 025, World Institute for Development Economic Research (UNU-WIDER).
    8. repec:nam:befdwp:3 is not listed on IDEAS
    9. Tari Lestari, 2014. "Can Indonesia’s Fiscal Policy be Sustained, with Exploding Debt?," Working Papers in Economics and Development Studies (WoPEDS) 201415, Department of Economics, Padjadjaran University, revised Nov 2014.
    10. Fuhmei Wang, 2009. "The effects of foreign borrowing policies on economic growth: success or failure?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 12(4), pages 273-284.

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