Political support to public debt repudiation in a Monetary Union - the role of the geographical allocation of debt
AbstractThe main arguments for the Stability and Growth Pact turn on the need to protect the European Central Bank against inflationary pressures from the fiscally prodigal countries (repudiation through inflation). Taking a political economy approach, in this paper we inquire into the conditions under which national governments may reach the decision for a partial or total repudiation of their debt. The main result produced by our model is that a debt management policy of lowering effective yields might be the dominant option for a self-interested government whose creditors consist in part of non-residents. On the basis of such result we argue that the impact of the fiscal position of the various member countries on the stability of EMU does not depend on the stock of debt but on the proportion of it that is held abroad.
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Bibliographic InfoPaper provided by University of Molise, Dept. EGSeI in its series Economics & Statistics Discussion Papers with number esdp04019.
Length: 20 pages
Date of creation: 02 Aug 2004
Date of revision:
Monetary union; Public debt; Government default; Political economy; Political support; Special interests; Common agency.;
Find related papers by JEL classification:
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-08-09 (All new papers)
- NEP-IFN-2004-08-09 (International Finance)
- NEP-MAC-2004-08-09 (Macroeconomics)
- NEP-POL-2004-08-09 (Positive Political Economics)
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