01844cas a2200241 a 4500 AALejournalIMF010001 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451954326 1018-5941 BD-DhAAL BD-DhAAL International Monetary Fund. Voluntary Debt Reduction : Incentives and Welfare. Washington, D.C. : International Monetary Fund, 1988. 1 online resource (50 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students In an economy with a debt overhang, investment depends on expected tax rates. On the other hand, expected tax rates depend on the debt's face value. Therefore investment depends on the face value of debt. I show that this may lead to a positive or negative association between debt and investment depending on the degree of international capital mobility and attitudes toward risk. There may also exist multiple equilibria; with high and low investment levels. The paper explores the desirability of debt reduction in this environment. First, it characterizes circumstances in which debt reduction is desirable from the collective point of view of the creditors. Second, it formulates the forgiveness decision as a noncooperative game among creditors and explores the scope for debt reduction as an outcome of this game. Mode of access: Internet IMF Working Papers; Working Paper ; No. 1988/084 Full text available on IMF http://elibrary.imf.org/view/journals/001/1988/084/001.1988.issue-084-en.xml IMF e-Library