Publication:
The Overhang Hangover

dc.contributor.author Imbs, Jean
dc.contributor.author Ranciere, Romain
dc.date.accessioned 2012-06-21T14:51:21Z
dc.date.available 2012-06-21T14:51:21Z
dc.date.issued 2005-08
dc.description.abstract The authors revisit the debt overhang question. They first use nonparametric techniques to isolate a panel of countries on the downward sloping section of a debt Laffer Curve. In particular, overhang countries are ones where a threshold level of debt is reached in sample, beyond which (initial) debt ends up lowering (subsequent) growth. On average, significantly negative coefficients appear when debt face value reaches 60 percent of GDP or 200 percent of exports, and when its present value reaches 40 percent of GDP or 140 percent of exports. Second, the authors depart from reduced form growth regressions and perform direct tests of the theory on the thus selected sample of overhang countries. In the spirit of event studies, they ask whether, as the overhang level of debt is reached: (1) investment falls precipitously as it should when it becomes optimal to default; (2) economic policy deteriorates observably, as it should when debt contracts become unable to elicit effort on the part of the debtor; and (3) the terms of borrowing worsen noticeably, as they should when it becomes optimal for creditors to preempt default and exact punitive interest rates. The authors find a systematic response of investment, particularly when property rights are weakly enforced, some worsening of the policy environment, and a fall in interest rates. This easing of borrowing conditions happens because lending by the private sector virtually disappears in overhang situations, and multilateral agencies step in with concessional rates. Thus, while debt relief is likely to improve economic policy (and especially investment) in overhang countries, it is doubtful that it would ease their terms of borrowing or the burden of debt. en
dc.identifier http://documents.worldbank.org/curated/en/2005/08/6133217/overhang-hangover
dc.identifier.uri http://hdl.handle.net/10986/8631
dc.language English
dc.publisher World Bank, Washington, DC
dc.relation.ispartofseries Policy Research Working Paper; No. 3673
dc.rights CC BY 3.0 IGO
dc.rights.holder World Bank
dc.rights.uri http://creativecommons.org/licenses/by/3.0/igo/
dc.subject ACCOUNTING
dc.subject BORROWING
dc.subject BUSINESS CYCLES
dc.subject CAPITAL ACCUMULATION
dc.subject CAPITAL FLIGHT
dc.subject CONTRACTUAL ARRANGEMENTS
dc.subject CREDITOR
dc.subject CREDITORS
dc.subject CROWDING OUT
dc.subject DEBT
dc.subject DEBT CONTRACTS
dc.subject DEBT FINANCING
dc.subject DEBT LEVEL
dc.subject DEBT OVERHANG
dc.subject DEBT RELIEF
dc.subject DEBT REPUDIATION
dc.subject DEBT RESCHEDULING
dc.subject DEBT SERVICE
dc.subject DEBT SUSTAINABILITY
dc.subject DEBTORS
dc.subject DISCOUNT RATES
dc.subject ECONOMIC DEVELOPMENT
dc.subject ECONOMIC GROWTH
dc.subject ECONOMIC OUTLOOK
dc.subject ECONOMIC PROGRESS
dc.subject EMPIRICAL EVIDENCE
dc.subject EXPECTED PRESENT VALUE
dc.subject EXPORTS
dc.subject EXTERNAL DEBT
dc.subject FACE VALUE
dc.subject FINANCIAL MARKETS
dc.subject FOREIGN BORROWING
dc.subject FREE RIDER
dc.subject FREE RIDER PROBLEM
dc.subject FUNCTIONAL FORMS
dc.subject GDP
dc.subject GLOBAL INTEREST
dc.subject GOVERNMENT EXPENDITURES
dc.subject GROWTH RATE
dc.subject INCOME
dc.subject INCOME LEVELS
dc.subject INEFFICIENCY
dc.subject INFLATION
dc.subject INTEREST RATE
dc.subject INTEREST RATES
dc.subject LAFFER CURVE
dc.subject MACROECONOMIC POLICY
dc.subject MACROECONOMICS
dc.subject MONITORING TECHNOLOGY
dc.subject MORAL HAZARD
dc.subject OUTSTANDING DEBT
dc.subject POLITICAL ECONOMY
dc.subject POPULATION GROWTH
dc.subject PRESENT VALUE OF DEBT
dc.subject PRICE STABILITY
dc.subject PROPERTY RIGHTS
dc.subject PUBLIC DEBT
dc.subject REPAYMENT
dc.subject RISK MANAGEMENT
dc.subject TERMS OF TRADE
dc.subject TRADE SHOCKS
dc.subject VALUATION
dc.title The Overhang Hangover en
dspace.entity.type Publication
okr.doctype Publications & Research
okr.doctype Publications & Research :: Policy Research Working Paper
okr.docurl http://documents.worldbank.org/curated/en/2005/08/6133217/overhang-hangover
okr.identifier.doi 10.1596/1813-9450-3673
okr.identifier.externaldocumentum 000016406_20050729140200
okr.identifier.internaldocumentum 6133217
okr.identifier.report WPS3673
okr.language.supported en
okr.pdfurl http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2005/07/29/000016406_20050729140200/Rendered/PDF/wps3673.pdf en
okr.unit Development Research Group (DECRG)
okr.volume 1 of 1
relation.isSeriesOfPublication 26e071dc-b0bf-409c-b982-df2970295c87
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