IMF conditionalities, liquidity provision, and incentives for fiscal adjustment

  title={IMF conditionalities, liquidity provision, and incentives for fiscal adjustment},
  author={Bernardo Guimaraes and Oz Solon Chovghi Iazdi},
  journal={International Tax and Public Finance},
This paper proposes a model to study how conditional lending and immediate liquidity provision affect incentives for fiscal adjustment in a country facing the risk of sovereign default. Conditional lending provides explicit incentives for fiscal adjustment but immediate liquidity provision is more effective in reducing liquidation costs. For some parameters, immediate liquidity provision induces fiscal adjustment and debt repayment, while conditional lending does not (and vice-versa… 
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