Financial Sector Inefficiencies and the Debt Laffer Curve
The authors analyze the implications of inefficient financial intermediation for dbt management, using a model in which firms rely on bank credit to finance their working capital needs, and, lenders face a high state verification and enforcement co...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, D.C.
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2002/05/1790966/financial-sector-inefficiencies-debt-laffer-curve http://hdl.handle.net/10986/14799 |
| Summary: | The authors analyze the implications of
inefficient financial intermediation for dbt management,
using a model in which firms rely on bank credit to finance
their working capital needs, and, lenders face a high state
verification and enforcement costs of loan contracts. Their
analysis shows that lower expected productivity, higher
contract enforcement, and verification costs, or higher
volatility of productivity shocks may shift the economy to
the wrong side of the debt Laffer curve, with potentially
sizable output, and welfare losses. The main implication of
this analysis is that debt relief may generate little
welfare gains, unless is accompanied by reforms aimed at
reducing financial sector inefficiencies. |
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