Sovereign risk: constitutions rule
Kohlscheen, Emanuel (2005) Sovereign risk: constitutions rule. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.731).
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This paper models the executive's choice of whether to reschedule external debt as the outcome of an intra-governmental negotiation process. The executive's necessity of a confidence vote from the legislature is found to provide the rationale for why some democracies may not renegotiate their foreign obligations. Empirically, parliamentary democracies are indeed less prone to reschedule their foreign liabilities or accumulate arrears on them. Most of the democracies that have been able to significantly reduce their debt/GNP ratio without a 'credit incident' were parliamentary. Moreover, countries with stronger political checks on the executive and lower executive turnover have a lower rescheduling propensity. These results suggest that North and Weingast's account of the evolution of institutions in 17th century England gives substantial mileage in understanding the international debt markets in the contemporary developing world.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HJ Public Finance|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Debts, Public, Democracy -- Economic aspects, Debt relief, Economic policy|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Number of Pages:||51|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Economic and Social Research Council (Great Britain) (ESRC)|
|Version or Related Resource:||Kohlscheen, E. Sovereign risk: constitutions rule. Oxford Economic Papers, 62(1), pp. 62-85. http://wrap.warwick.ac.uk/id/eprint/16793|
Alesina, A., Drazen, A. (1991) Why are stabilizations delayed ? American Economic Review 81, 1170-1188.
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