Advanced Search
MyIDEAS: Login to save this paper or follow this series

Strategic Sovereign Defaults under International Sanctions

Contents:

Author Info

  • Carlo de Bassa Scheresberg, Francesco Passarelli

Abstract

Sanctions induce political instability. We present a model where sanctioned regimes may decide to repudiate their public debts in order to keep internal support. To be effective, this strategy requires the share of foreign debt to be larger than the minimum quota of population which is needed for regime support. Combining the data we highlight that more than a third of all sovereign debt crises in the 1970-2001 period are connected to an international sanction episode. To rule out endogeneities, we propose an innovative instrumental variable based on foreign policy cycles. Results confirm that sovereign defaults reduce sanctions' destabilizing impact. When the scope for internal financial transfers is particularly narrow, debt repudiation releases resources for public spending, invalidating chances of overthrow. Lastly, we report evidence of sizeable anticipation effects which contradict the enforcement theory: high chances of receiving sanctions in the future imply a current 20% rise in probability of strategic default.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: ftp://ftp.unibocconi.it/pub/RePEc/slp/papers/islawp42.pdf
Download Restriction: no

Bibliographic Info

Paper provided by ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy in its series ISLA Working Papers with number 42.

as in new window
Length: 19 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:slp:islawp:islawp42

Contact details of provider:
Postal: via Sarfatti, 25 - 20136 Milano - Italy
Phone: +39.025836.2296
Fax: +39.025836.5439
Web page: http://www.isla.unibocconi.it/

Related research

Keywords: sovereing debt default; strategic default; sanctions;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Nouriel Roubini & Paolo Manasse, 2005. "Rules of Thumb for Sovereign Debt Crises," IMF Working Papers 05/42, International Monetary Fund.
  2. Michael Tomz & Mark L. J. Wright, 2007. "Do Countries Default in "Bad Times" ?," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 352-360, 04-05.
  3. Andrew K. Rose & Mark M. Spiegel, 2002. "A Gravity Model of Sovereign Lending: Trade, Default and Credit," NBER Working Papers 9285, National Bureau of Economic Research, Inc.
  4. Cole, Harold L & Kehoe, Patrick J, 1998. "Models of Sovereign Debt: Partial versus General Reputations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 55-70, February.
  5. Martinez, Jose Vicente & Sandleris, Guido, 2011. "Is it punishment? Sovereign defaults and the decline in trade," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 909-930, October.
  6. Eduardo Borensztein & Ugo Panizza, 2010. "Do Sovereign Defaults Hurt Exporters?," Open Economies Review, Springer, vol. 21(3), pages 393-412, July.
  7. Eduardo Borensztein & Ugo Panizza, 2008. "The Costs of Sovereign Default," IMF Working Papers 08/238, International Monetary Fund.
  8. Gary Clyde Hufbauer & Jeffrey J. Schott & Kimberly Ann Elliott, 1990. "Economic Sanctions Reconsidered: 2nd Edition," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 82.
  9. Federico Sturzenegger & Jeromin Zettelmeyer, 2007. "Debt Defaults and Lessons from a Decade of Crises," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262195534, December.
  10. Chang, Roberto, 2007. "Financial crises and political crises," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2409-2420, November.
  11. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-61, September.
  12. Juan Carlos Hatchondo & Leonardo Martinez & Horacio Sapriza, 2007. "The economics of sovereign defaults," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 163-187.
  13. Edwards, Sebastian, 1984. "LDC Foreign Borrowing and Default Risk: An Empirical Investigation, 1976-80," American Economic Review, American Economic Association, vol. 74(4), pages 726-34, September.
  14. Mitchener, Kris James & Weidenmier, Marc D., 2010. "Supersanctions and sovereign debt repayment," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 19-36, February.
  15. Sebastian Edwards, 1983. "LDC's Foreign Borrowing and Default Risk: An Empirical Investigation," NBER Working Papers 1172, National Bureau of Economic Research, Inc.
  16. Ugo Panizza & Federico Sturzenegger & Jeromin Zettelmeyer, 2009. "The Economics and Law of Sovereign Debt and Default," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 651-98, September.
  17. Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:slp:islawp:islawp42. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stefano Riela).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.