Endogenous Creditor Seniority and External Debt Values
Summary:
A new aggregation scheme used to measure the sources of fiscal financing of indebted countries suggests that there was a fundamental improvement in the seniority of domestic debt at the expense of foreign bank debt during the late 1980s. We argue that this was the revenue maximizing response of governments to internal and external capital flight that drained the domestic financial “tax base” subject to indirect taxation. Empirical analysis indicates that the profile of the sources of fiscal financing influenced external debt values. The econometric analysis also implies that previous studies have neglected an important reason for the decline in loan values from 1985 to 1989: the increase in international interest rates.
Series:
Working Paper No. 1992/057
Subject:
Balance of payments Capital outflows Domestic debt External debt Financial institutions Fiscal policy Fiscal stance Loans Public debt
Notes:
Empirical analysis of both the internal and external debt of 17 developing countries. Also published in Staff Papers, Vol. 40, No. 2, June 1993.
English
Publication Date:
July 1, 1992
ISBN/ISSN:
9781451967180/1018-5941
Stock No:
WPIEA0571992
Pages:
32
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