Crony Capitalism and Sovereign Default
AbstractCronyism provides policymakers with marked incentives to repay sovereign debt. This takes place at the expense of the average citizen who bears both steep costs of debt repudiation and high costs of debt service, as clientelism increases both financial fragility and the debt burden. The paper sets up a model of strategic debt default that nails down this point, with political distortions and where a representative agent can dismiss the government and overrule its decision. Economic hard times provide an opportunity to implement reforms fighting clientelism, as the implicit coalition between groups of cronies may break down. A model is built along these lines, which highlights cross-country contagion of debt repudiation. Copyright Springer Science + Business Media, Inc. 2005
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Bibliographic InfoArticle provided by Springer in its journal Open Economies Review.
Volume (Year): 16 (2005)
Issue (Month): 1 (January)
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Web page: http://www.springerlink.com/link.asp?id=100323
crony capitalism; political distortion; debt service; financial fragility; pure contagion;
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