The carrot and stick approach to debt relief: overcoming moral hazard

Curse or Blessing? Has the Impact of Debt Relief Lived up to Expectations? A Review of the Effects of the Multilateral Debt Relief Initiatives for Low-Income Countries

“…Other empirical approaches, as compared with those implemented in the abovementioned papers, assign dummy variables at the decision and/or completion point (Tsafack Temah, 2009) and use difference-in-differences specifications in their impact evaluation methods. Specifically, some use dummy variables with different lags to observe whether the initiatives have impacts around the completion or decision points (Cuaresma & Vincelette, 2008;Schmid, 2009;Ferry, 2015;Ferry et al, 2016) rather than at the point itself (one, two or three years after the completion point, for example).…”

“…Although these methodologies, by their very definition, do not single out the impacts of these initiatives by debt relief amount, they have furthered the identification of certain effects on variables crucial to the achievement of the Millennium Development Goals (healthcare expenditure (Tsafack Temah, 2009); primary drop-out rates (Cuaresma & Vincelette, 2008); and infant mortality (Schmid, 2009;Welander, 2016). Moreover, when it comes to investigating the signal effect that such initiatives might have had on external lenders (Ferry et al, 2016) or to identifying HIPC responses to conditionality associated with the HIPC process (Ferry, 2015), the use of difference-in-differences or event-study approaches can be useful and identify, under certain conditions, significant multilateral debt relief initiative impacts.…”

“…However, a debt distressed country would find a more efficient fiscal policy less worthwhile since it would not be able to fully reap the benefits of its efforts, as these additional resources would accrue to creditors as debt repayments. This kind of relationship between taxation and debt relief has recently been supported by Ferry (2015), who provides empirical evidence of an increase in tax effort (defined as the government's willingness to tax) following debt relief granted under the HIPC initiatives. However, this study points up that the observed tax improvements result mainly from the conditionality attached to the HIPC initiative, which requires candidate countries to implement a macro-stabilising programme (often focused on the need to balance the public deficit) before being eligible for debt relief.…”

“…Other studies simplify the issue by using dummy variables to mark the HIPC decision or completion point date. Although this approach has turned up substantial impacts in some cases (Tsafack Temah, 2009;Schmid, 2009;Ferry, 2015;Welander 2016;Ferry, Raffinot, & Venet, 2016), it remains debatable with regard to other research questions. When seeking to identify the liquidity effects of debt relief, the use of a binary variable is questionable as these effects depend on the amount of relief granted.…”

La soutenabilité des dettes en Afrique : état des lieux et enjeux futurs

“…Si l'objectif principal de ramener la dette publique à un niveau soutenable a été atteint, il n'existe aujourd'hui encore pas de consensus quant à l'effet potentiel de ces programmes sur la croissance économique des pays récipiendaires (Ferry et Raffinot, 2019). Néanmoins, la littérature académique a démontré que ces initiatives avaient permis aux États PPTE d'accroître l'investissement public (Cassimon, et al 2015 ;Djimeu, 2018) et de renforcer leur capacité budgétaire (Ferry, 2019).…”