The Welfare Economics of Debt Service / Dani Rodrik.

Format:

Book

Author/Creator:

Rodrik, Dani.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2655.

NBER working paper series no. w2655

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1988.

Summary:

This paper analyzes some of the implications of the dual transfer a debtor nation must undertake to service foreign debt: (a) an internal transfer from the private sector to the public sector; and (b) an external transfer from the domestic economy to foreign creditors. It shows that, under likely circumstances, a real depreciation of the home currency may complicate the internal transfer. As long as non-traded goods are a net source of revenue for the government, the depreciation called for by debt service deteriorates the public sector's terms of trade vis-a-vis the private sector and magnifies the requisite fiscal retrenchment. The paper discusses the role of trade policy (tariffs and export subsidies) in substituting for devaluation. Generating a private-sector surplus via interest-rate policy is shown to have similar costs on the government budget when the public sector has outstanding domestic debt.

Notes:

Print version record

July 1988.