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What determines debt intolerance? The role of political and monetary institutions

  • Giordano, Raffaela
  • Tommasino, Pietro

Why do some States default on their debt more often than others? We argue that sovereign default is the outcome of a political struggle among different groups of citizens. It is less likely to happen if domestic debt-holders are politically strong and/or the costs of the financial turmoil typically triggered by a sovereign bankruptcy are large. We show that these conditions are in turn more likely to be present if a country has a strong middle class and/or a sufficiently independent central bank.

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Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 27 (2011)
Issue (Month): 3 (September)
Pages: 471-484

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Handle: RePEc:eee:poleco:v:27:y:2011:i:3:p:471-484
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