Debt relief & democracy

Since 1996, multiple initiatives have been carried out by the international community in order to help the alleviation of poverty in a set of poor countries that were classified as heavily indebted. Significant amounts of debt relief have been provided to these countries with the aim of bringing their external debt levels to a sustainable level and therefore promote improvement of life of the poor societies. The narrative arguments in favour of these relief programs are thoroughly outlined, but they need to be tested against real data in order to assess the true effects. In order to do so, this study uses data on 36 poor countries, and looks at the effects debt relief has on the educational and health public sectors, which are argued to have the means to improve the life standards. The study uses panel data for the period 1990-2012 and finds that debt relief has a positive and significant impact on the resource allocation of countries’ education and health sectors. Furthermore, it is revealed that democratic countries benefit more from the provision of debt relief compared to more autocratic governments.