AbstractThe purpose of this thesis is to contribute to our understanding of ongoing problems which continue to hinder the effectiveness of debt relief and fiscal consolidation policies in developing countries. As such, the main findings are disclosed in three self-contained, but related, empirical chapters (chapters 2-4). A detailed discussion of the theoretical and empirical underpinnings is provided in each chapter.
Chapter 2 examines the transmission channels of the effects of debt relief on human welfare across different classifications of developing countries based on their level of de pendency on primary commodities. It utilizes a newly generated dataset (of present value) of debt relief for 80 developing countries over 1990-2016. It is found that debt relief only uplifts human welfare in non-natural resource dependent HIPC countries, unlike the remaining group of countries (i.e., natural resource dependent HIPCs). This effect remains robust even after accounting for the role of debt overhang and institutional quality in panel regressions. An analysis of the underlying transmission channels shows that national income and education are the main contributors to the overall positive effect of debt relief on human welfare.
Chapter 3 investigates the impact of debt relief stemming from HIPC and MDRI assistances on the budget of 30 African beneficiary governments. A theoretical framework is developed to allow for endogenous debt relief and different categories of government expenditure. To test the underlying inferences, empirical analysis is conducted using a new dataset which is built on debt service savings from debt relief by using the International Monetary Fund (IMF) country reports such as articles IV reports, and HIPC and MDRI completion point documents. Results indicate that debt service savings from debt relief help African HIPC countries to increase domestic tax collection and create fiscal space for public spending in general and social spending in particular. However, such positive fiscal responses are significantly more pronounced in fragile HIPC countries when compared to their non-fragile counterparts. Government expenditure on education is revealed to be ineffective in both fragile and non-fragile African HIPC countries.
Chapter 4 examines the effect of fiscal consolidation actions – motivated by the desire to reduce government debt levels – on the performance of more than 118,279 firms in developing countries. A novel dataset of more than 544 fiscal consolidation actions is constructed by using IMF staff reports (e.g., Article IV consultations and IMF Program documents), and countries’ specific reports from the African Development Bank, Asian Development Bank and Inter-American Development Bank. This new narrative dataset of fiscal policy actions is combined with the World Bank Enterprise Survey (WBES) covering a large database of more than 98 developing countries over 2006–2018. Findings reveal that firm performance declines with fiscal consolidation policies and this decline is mitigated when consolidation is higher than 1.5 percent of GDP. Moreover, debt-driven consolidation efforts based on tax hikes are more contractionary than those based on spending cuts, even though these contractionary effects are mitigated when spending cuts are large.
|Date of Award||Nov 2021|
|Supervisor||Baseerit Nissah (Supervisor), Judith Kabajulizi (Supervisor) & Sailesh Tanna (Supervisor)|