Publication:
The Overhang Hangover

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dc.contributor.authorImbs, Jean
dc.contributor.authorRanciere, Romain
dc.date.accessioned2012-06-21T14:51:21Z
dc.date.available2012-06-21T14:51:21Z
dc.date.issued2005-08
dc.description.abstractThe 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.identifierhttp://documents.worldbank.org/curated/en/2005/08/6133217/overhang-hangover
dc.identifier.doi10.1596/1813-9450-3673
dc.identifier.urihttps://hdl.handle.net/10986/8631
dc.languageEnglish
dc.publisherWorld Bank, Washington, DC
dc.relation.ispartofseriesPolicy Research Working Paper; No. 3673
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo/
dc.subjectACCOUNTING
dc.subjectBORROWING
dc.subjectBUSINESS CYCLES
dc.subjectCAPITAL ACCUMULATION
dc.subjectCAPITAL FLIGHT
dc.subjectCONTRACTUAL ARRANGEMENTS
dc.subjectCREDITOR
dc.subjectCREDITORS
dc.subjectCROWDING OUT
dc.subjectDEBT
dc.subjectDEBT CONTRACTS
dc.subjectDEBT FINANCING
dc.subjectDEBT LEVEL
dc.subjectDEBT OVERHANG
dc.subjectDEBT RELIEF
dc.subjectDEBT REPUDIATION
dc.subjectDEBT RESCHEDULING
dc.subjectDEBT SERVICE
dc.subjectDEBT SUSTAINABILITY
dc.subjectDEBTORS
dc.subjectDISCOUNT RATES
dc.subjectECONOMIC DEVELOPMENT
dc.subjectECONOMIC GROWTH
dc.subjectECONOMIC OUTLOOK
dc.subjectECONOMIC PROGRESS
dc.subjectEMPIRICAL EVIDENCE
dc.subjectEXPECTED PRESENT VALUE
dc.subjectEXPORTS
dc.subjectEXTERNAL DEBT
dc.subjectFACE VALUE
dc.subjectFINANCIAL MARKETS
dc.subjectFOREIGN BORROWING
dc.subjectFREE RIDER
dc.subjectFREE RIDER PROBLEM
dc.subjectFUNCTIONAL FORMS
dc.subjectGDP
dc.subjectGLOBAL INTEREST
dc.subjectGOVERNMENT EXPENDITURES
dc.subjectGROWTH RATE
dc.subjectINCOME
dc.subjectINCOME LEVELS
dc.subjectINEFFICIENCY
dc.subjectINFLATION
dc.subjectINTEREST RATE
dc.subjectINTEREST RATES
dc.subjectLAFFER CURVE
dc.subjectMACROECONOMIC POLICY
dc.subjectMACROECONOMICS
dc.subjectMONITORING TECHNOLOGY
dc.subjectMORAL HAZARD
dc.subjectOUTSTANDING DEBT
dc.subjectPOLITICAL ECONOMY
dc.subjectPOPULATION GROWTH
dc.subjectPRESENT VALUE OF DEBT
dc.subjectPRICE STABILITY
dc.subjectPROPERTY RIGHTS
dc.subjectPUBLIC DEBT
dc.subjectREPAYMENT
dc.subjectRISK MANAGEMENT
dc.subjectTERMS OF TRADE
dc.subjectTRADE SHOCKS
dc.subjectVALUATION
dc.titleThe Overhang Hangoveren
dspace.entity.typePublication
okr.crossref.titleThe Overhang Hangover
okr.date.doiregistration2025-04-10T09:36:42.507043Z
okr.doctypePublications & Research
okr.doctypePublications & Research::Policy Research Working Paper
okr.docurlhttp://documents.worldbank.org/curated/en/2005/08/6133217/overhang-hangover
okr.guid929321468330044143
okr.identifier.doi10.1596/1813-9450-3673
okr.identifier.externaldocumentum000016406_20050729140200
okr.identifier.internaldocumentum6133217
okr.identifier.reportWPS3673
okr.language.supporteden
okr.pdfurlhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2005/07/29/000016406_20050729140200/Rendered/PDF/wps3673.pdfen
okr.unitDevelopment Research Group (DECRG)
okr.volume1 of 1
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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