This paper shows that politics matter in explaining defaults on external and domestic debt obligations. We explore a large number of political and macroeconomic variables using a nonparametric technique to predict safety from default. The advantage of this technique is that it is able to identify complementarities that are not captured in standard probit analysis. We find that political factors matter, and do so in different ways for democratic and non-democratic regimes, and for domestic and external debt. Moreover we find that there is an important complementarity between political and economic conditions, which is essential in explaining the incidence of default.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
4683.
Find related papers by JEL classification: F30 - International Economics - - International Finance - - - General F34 - International Economics - - International Finance - - - International Lending and Debt Problems
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