Social and Behavioral Sciences Commons^™

International Debt Forgiveness: Who Getspicked And Its Effect On The Tax Effort Ofdeveloping Countries, Leanora Alecia Brown, Jorge Martinez-Vazquez

ICEPP Working Papers

We explore whether the expectation of debt forgiveness discourages developing countries from attaining sustainable fiscal independence through improving their tax effort. While the international financial community advises poor countries to improve revenue mobilization, the same international community routinely bail-out poor countries that fail to meet their loan repayment obligations. The act of bailing-out creates an expectation about receiving debt forgiveness time and again in the future. The key prediction of our theoretical framework is that in the presence of debt forgiveness, countries’ tax efforts will decline and more so the higher the intensity of the bailouts. We test this using …