This paper shows that whether or not a sovereign can borrow to smooth consump- tion depends both on how consumption smoothing is achieved, whether by contingent debt issuance or by contingent debt servicing, and on the penalty for debt repudiation. If a sovereign that repudiated its debt could not borrow again, but could continue to save and to dissave, then contingent debt issuance, without contingent debt servicing, cannot support a positive amount of uncollateralized sovereign debt. But, with this same penalty for repu- diation, contingent debt servicing supports a positive amount of uncollateralized sovereign debt.
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Paper provided by Brown University, Department of Economics in its series Working Papers with number
97-6.
Find related papers by JEL classification: F34 - International Economics - - International Finance - - - International Lending and Debt Problems H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management
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