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Debt Relief and Adjustment Incentives

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  • W. Max Corden

    (International Monetary Fund)

Abstract

The argument that debt relief would increase the incentive of a debtor country to make an adjustment effort (to invest) and that for this reason creditors may benefit by granting relief is analyzed in this paper. It is shown that there are actually opposing incentive effects of debt relief and that the argument could be valid in particular circumstances. A distinction is made between exogenous and endogenous relief, the latter compelled by low capacity to pay caused by low investment earlier.

Suggested Citation

  • W. Max Corden, 1988. "Debt Relief and Adjustment Incentives," IMF Staff Papers, Palgrave Macmillan, vol. 35(4), pages 628-643, December.
    • Handle: RePEc:pal:imfstp:v:35:y:1988:i:4:p:628-643
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