Domestic versus External Borrowing and Fiscal Policy in Emerging Markets
AbstractThis paper presents a model of an emerging market sovereign that can selectively default on its domestic or external creditors. The two classes of creditors have different ways of punishing the government in the event of default, which in turn creates a differential in the sovereign's incentives to default on its domestic versus foreign creditors. We explore the extent to which the possibility of differential treatment of creditors affects the composition of debt. We find that a country characterized by volatile output, sovereign risk, and costly tax collection will want to borrow in domestic as well as in international markets. Copyright � 2010 Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 18 (2010)
Issue (Month): 5 (November)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576
Other versions of this item:
- Garima Vasishtha, 2007. "Domestic versus External Borrowing and Fiscal Policy in Emerging Markets," Working Papers 07-33, Bank of Canada.
- F30 - International Economics - - International Finance - - - General
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
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