Financial sector inefficiencies and the debt laffer curve

Pierre Richard Agénor, Joshua Aizenman

Research output: Contribution to journalArticlepeer-review

2 Scopus citations


This paper analyses the implications of inefficient financial intermediation for debt management in a model where firms rely on bank credit to finance their working capital needs and lenders face state verification and contract enforcement costs. We show that lower expected productivity, higher enforcement and verification costs, or higher volatility of productivity shocks, may shift a country to the wrong side of its debt Laffer curve, with potentially sizable output and welfare losses. We also show that debt relief may bring few welfare benefits unless it is accompanied by reforms aimed at reducing financial sector inefficiencies.

Original languageEnglish
Pages (from-to)1-13
Number of pages13
JournalInternational Journal of Finance and Economics
Issue number1
StatePublished - 1 Jan 2005
Externally publishedYes


  • Contract enforcement costs
  • Credit market imperfections
  • Debt Laffer curve

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


Dive into the research topics of 'Financial sector inefficiencies and the debt laffer curve'. Together they form a unique fingerprint.

Cite this