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Political support to public debt repudiation in a Monetary Union - the role of the geographical allocation of debt

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  • Di Gioacchino, Debora
  • Ginebri, Sergio

    ()

  • Sabani, Laura

Abstract

The 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 Info

Paper provided by University of Molise, Dept. EGSeI in its series Economics & Statistics Discussion Papers with number esdp04019.

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Length: 20 pages
Date of creation: 02 Aug 2004
Date of revision:
Handle: RePEc:mol:ecsdps:esdp04019

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Keywords: Monetary union; Public debt; Government default; Political economy; Political support; Special interests; Common agency.;

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  1. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR & CES & MSH, vol. 13(26), pages 65-113, 04.
  2. V. V. Chari & Patrick J. Kehoe, 1998. "On the need for fiscal constraints in a monetary union," Working Papers 589, Federal Reserve Bank of Minneapolis.
  3. Beetsma, R.M.W.J. & Bovenberg, A.L., 1995. "Designing fiscal and monetary institutions for a European Monetary Union," Discussion Paper 1995-58, Tilburg University, Center for Economic Research.
  4. Alberto Alesina & Guido Tabellini, 1987. "A Positive Theory of Fiscal Deficits and Government Debt in a Democracy," NBER Working Papers 2308, National Bureau of Economic Research, Inc.
  5. Beetsma, R.M.W.J. & Bovenberg, A.L., 1995. "Does monetary unification lead to excessive debt accumulation," Discussion Paper 1995-112, Tilburg University, Center for Economic Research.
  6. Di Gioacchino, Debora & Ginebri, Sergio & Sabani, Laura, 2000. " Bribery and Public Debt Repudiation," Public Choice, Springer, vol. 105(3-4), pages 303-21, December.
  7. Alesina, Alberto & Tabellini, Guido, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 403-14, July.
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Cited by:
  1. Waldenström, Daniel, 2005. "Does Sovereign Risk Differ for Domestic and Foreign Investors? Historical Evidence from Scandinavian Bond Markets," Working Paper Series in Economics and Finance 585, Stockholm School of Economics, revised 18 Feb 2005.

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