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

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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.

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Authors and Affiliations

  1. Institute of Development Policy and Management (IOB), University of Antwerp, p/a Prinsstraat 13, B-2000, Antwerpen, Belgium

    Danny Cassimon

  2. Universiy of Antwerp, Antwerpen, Belgium

    Bjorn Van Campenhout

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  1. Danny Cassimon
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  2. Bjorn Van Campenhout
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Correspondence to Danny Cassimon.

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JEL no.

F34, F35, O11, O19

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Cassimon, D., Van Campenhout, B. Aid Effectiveness, Debt Relief and Public Finance Response: Evidence from a Panel of HIPC Countries. Rev World Econ 143, 742–763 (2007). https://doi.org/10.1007/s10290-007-0130-z

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  • DOI: https://doi.org/10.1007/s10290-007-0130-z

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