Kohlscheen, Emanuel (2007) Why are there serial defaulters? Evidence from constitutions. Journal of Law and Economics, Volume 50 (Number 4). pp. 713-730. doi:10.1086/519814

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Abstract

Presidential democracies were 4.9 times more likely than parliamentary democracies to default on external debts between 1976 and 2000. In this article I argue that the explanation for the serial defaults by a number of sovereign borrowers lies in their constitutions. Ceteris paribus, parliamentary democracies are less likely than presidential democracies to default on their liabilities because the confidence requirement creates a credible link between economic policies and the executive's political survival. This link tends to strengthen the repayment commitment when politicians are opportunistic. I show that this effect is large in the contemporary world even when the comparison is restricted to countries that are similar in terms of colonial origin, geography, and economic variables. Since a country's form of government is typically chosen at the time of independence and is highly persistent over time, constitutions can explain why debt policies in developing countries are related to individual histories.

Item Type:	Journal Article
Subjects:	H Social Sciences > HC Economic History and Conditions K Law [LC]
Divisions:	Faculty of Social Sciences > Centre for the Study of Globalisation and Regionalisation
Journal or Publication Title:	Journal of Law and Economics
Publisher:	University of Chicago Press
ISSN:	0022-2186
Official Date:	November 2007
Dates:	Date Event November 2007 UNSPECIFIED
Volume:	Volume 50
Number:	Number 4
Number of Pages:	18
Page Range:	pp. 713-730
DOI:	10.1086/519814
Status:	Peer Reviewed
Publication Status:	Published

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