Sovereign Risk: Constitutions Rule
AbstractThis paper models the executive's choice of whether to reschedule external debt as the outcome of an intra-governmental negotiation process. The executive's necessity of a confidence vote from the legislature is found to provide the rationale for why some democracies may not renegotiate their foreign obligations. Empirically, parliamentary democracies are indeed less prone to reschedule their foreign liabilities or accumulate arrears on them. Most of the democracies that have been able to significantly reduce their debt/GNP ratio without a 'credit incident' were parliamentary. Moreover, countries with stronger political checks on the executive and lower executive turnover have a lower rescheduling propensity. These results suggest that North and Weingast's account of the evolution of institutions in 17th century England gives substantial mileage in understanding the international debt markets in the contemporary developing world
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 25.
Date of creation: 03 Dec 2006
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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debt; crises; political institution; commitment; constitution; parliamentary; presidential;
Other versions of this item:
- Kohlscheen, Emanuel, 2005. "Sovereign Risk : Constitutions Rule," The Warwick Economics Research Paper Series (TWERPS) 731, University of Warwick, Department of Economics.
- F30 - International Economics - - International Finance - - - General
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
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