Aid Effectiveness, Debt Relief And Public Finance Response

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. The authors 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. They find that the fiscal impact of HIPC debt relief follows fairly complex dynamics.