The Carrot and Stick Approach to Debt Relief: Overcoming Moral Hazard

Marin Ferry

No DT/2015/14, Working Papers from DIAL (Développement, Institutions et Mondialisation)

Abstract: (english) Using an event-study framework, this paper empirically assesses the impact of debt relief on government's tax effort. Our results suggest that having reached the decision point leads to higher level of tax effort. But our findings also reveal that HIPCs' governments seem to adopt moral hazard behavior (especially when institutional quality is weak) since they deploy the bulk of their tax effort before the decision point in order to get debt relief and then loosen it as they come close to the end of the debt relief process. However, post-debt relief tax effort remains significantly larger than the level recorded before the anticipatory effects took place, thus emphasizing an overall positive effect of the Enhanced HIPC initiative. _________________________________ (français) Cet article évalue l'impact des initiatives d'allègement de la dette multilatérale sur l'effort fiscal des gouvernements bénéficiaires. Les résultats de cette étude indiquent qu'avoir atteint le “point de décision” de l'initiative PPTE conduit les gouvernements concernés à enregistrer un effort fiscal plus important que s'ils n'avaient atteint ce point. Mais des tests additionnels révèlent également un certain aléa moral de la part de ces derniers puisqu'ils semblent déployer l'essentiel de leur effort fiscal dans le but d'obtenir des réductions de dette avant de réduire progressivement ce même effort au fur et à mesure qu'ils s'approchent du “point d'achèvement” et donc de la fin du processus PPTE. Cependant, malgré ce relâchement, le niveau d'effort fiscal observé en fin de parcours reste supérieur à celui enregistré avant que l'effet d'anticipation ne prenne place, permettant ainsi de conclure à un effet global positif de l'initiative PPTE.

Keywords: Debt Relief; Tax Effort; Event-Study; Moral Hazard; Annulation de dette; Effort fiscal; Event-Study; Aléa Moral. (search for similar items in EconPapers)
JEL-codes: F34 F35 H20 H30 H60 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2015-09
New Economics Papers: this item is included in nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://dial.ird.fr/wp-content/uploads/2021/10/201 ... ing-Moral-Hazard.pdf First version, 2015 (application/pdf)

Related works:
Journal Article: The carrot and stick approach to debt relief: overcoming moral hazard (2019)
Working Paper: The carrot and stick approach to debt relief: overcoming moral hazard (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:dia:wpaper:dt201514

Access Statistics for this paper

More papers in Working Papers from DIAL (Développement, Institutions et Mondialisation) Contact information at EDIRC.
Bibliographic data for series maintained by Loic Le Pezennec ().