This 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 andWeingast’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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Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003.
"Debt intolerance,"
MPRA Paper
13932, University Library of Munich, Germany.
[Downloadable!]
Other versions:
Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003.
"Debt Intolerance,"
NBER Working Papers
9908, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003.
"Debt Intolerance,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 34(2003-1), pages 1-74.
[Downloadable!]
Peter H. Lindert & Peter J. Morton, 1989.
"How Sovereign Debt Has Worked,"
NBER Chapters,
in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 39-106
National Bureau of Economic Research, Inc.
[Downloadable!]
Other versions:
Peter H. Lindert & Peter J. Morton, 1989.
"How Sovereign Debt Has Worked,"
NBER Chapters,
in: Developing Country Debt and the World Economy, pages 225-236
National Bureau of Economic Research, Inc.
[Downloadable!]
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