Less debt, more schooling? Evidence from cross-country micro data

Soaring levels of public debt in low-income countries are fuelling concerns about their ability to achieve the Sustainable Development Goals such as free access to primary education. In the late 1990s and 2000s, international financial institutions introduced a series of debt relief initiatives aimed to restore debt sustainability among highly indebted countries. This study examines the impact of these initiatives on primary school attendance. We exploit the temporal variation in the implementation of these policies, in combination with individual-level data from 177 Demographic and Health Surveys covering more than 1.5 million school age children from 44 low-income countries to implement difference-in-differences and spatial difference-in-discontinuity estimators. Results suggest that debt relief initiatives, by freeing up additional public resources, have significantly contributed to increasing primary school attendance among heavily indebted countries. Impact heterogeneity analysis also shows that debt relief has been effective at reducing wealth-based, intergenerational, religious, ethnic and spatial inequalities in education. Our results provide robust evidence to assert that debt relief, in combination with other financing sources, can contribute to improving educational outcomes in highly indebted poor countries