DEBT LAFFER CURVE ANALYSIS: A CASE STUDY OF HEAVILY INDEBTED POOR COUNTRIES

Authors

  • Muhammad Ramzan Sheikh School of Economics, Bahauddin Zakariya University, Multan, Pakistan
  • Imran Sharif Chaudhry School of Economics, Bahauddin Zakariya University, Multan Pakistan
  • Hamza Jan School of Economics, Bahauddin Zakariya University, Multan Pakistan
  • Saima Khan Khosa Department of Mathematics and Statistics, University of Saskatchewan, Saskatoon

DOI:

https://doi.org/10.56536/ijmres.v10i1.60

Keywords:

Debt Overhang, Price elasticity, HIPCs

Abstract

This study explores that whether the debt financing or debt forgiving would be suitable for the Highly Indebted Poor Countries (HIPCs). Debt Laffer curve theory has been tested in 21 HIPCs by applying price equation of debt, maximized value of debt and price elasticity approach over the period of 1980 to 2014. The maximized value of debt criterion implies that Chad is not eligible for the debt write-off strategy in comparison with the rest of the countries. By applying price elasticity approach, it is observed that only Burkina Faso, Cameroon, Chad, and Republic of Congo are eligible for debt financing while the remaining countries should adopt debt write-off facility. The crux of the study is that overall debt forgiveness is suitable for the HIPCs. Moreover, it is also in the favor of both the creditor countries and various international financial institutions such as World Bank and IMF and HIPCs itself. The study suggests that the creditors should continue to be financing along with improving structural policies and institutions of the HIPCs

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Published

01-03-2020

How to Cite

Muhammad Ramzan Sheikh, Imran Sharif Chaudhry, Hamza Jan, & Saima Khan Khosa. (2020). DEBT LAFFER CURVE ANALYSIS: A CASE STUDY OF HEAVILY INDEBTED POOR COUNTRIES. International Journal of Management Research and Emerging Sciences, 10(1). https://doi.org/10.56536/ijmres.v10i1.60

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