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Sovereign Debt and Repudiation: The Emerging-Market Debt Crisis in the U.S. States, 1839-1843


  • John Joseph Wallis
  • Richard E. Sylla
  • Arthur Grinath III


In 1841 and 1842, eight states and the Territory of Florida defaulted on their sovereign debts. Traditional histories of the default crisis have stressed the causal role of the depression that began with the Panic of 1837, unexpected revenue shortfalls from canal and bank investments as a result of the depression, and an unwillingness of states to raise tax rates. This paper shows that none of these stylized facts fits the experience of states at all well. The majority of state debts in default in 1842 were contracted after the Panic of 1837; most states did not expect canal investments to return substantial revenues by 1841 and so could not experience unexpected shortfalls in those revenues; and, finally, most states were willing to raise tax rates substantially. The relationship between land sales and land values explains much of the timing of state borrowing and the default experience of western and southern states. Pennsylvania and Maryland defaulted because they postponed the imposition of a state property tax until it was too late.

Suggested Citation

  • John Joseph Wallis & Richard E. Sylla & Arthur Grinath III, 2004. "Sovereign Debt and Repudiation: The Emerging-Market Debt Crisis in the U.S. States, 1839-1843," NBER Working Papers 10753, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:10753
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    References listed on IDEAS

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    Cited by:

    1. Liu, Lili & Webb, Steven B., 2011. "Laws for fiscal responsibility for subnational discipline : international experience," Policy Research Working Paper Series 5587, The World Bank.
    2. John Joseph Wallis, 2006. "The Concept of Systematic Corruption in American History," NBER Chapters,in: Corruption and Reform: Lessons from America's Economic History, pages 23-62 National Bureau of Economic Research, Inc.
    3. Winkler, Adalbert, 2013. "Der lender of last resort vor Gericht," Frankfurt School - Working Paper Series 206, Frankfurt School of Finance and Management.
    4. Rauchway, Eric, 2006. "The Role of Federalism in Developing the US during Nineteenth-century Globalization," WIDER Working Paper Series 072, World Institute for Development Economic Research (UNU-WIDER).
    5. C. Randall HENNING & Martin KESSLER, 2012. "Fiscal Federalism: US History for Architects of Europe’s Fiscal Union," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 1-31.
    6. Michael D. Bordo & Christopher M. Meissner, 2015. "Growing Up to Stability? Financial Globalization, Financial Development and Financial Crises," NBER Working Papers 21287, National Bureau of Economic Research, Inc.
    7. Jeffrey Rogers Hummel, 2012. "Some Possible Consequences of a U.S. Government Default," Econ Journal Watch, Econ Journal Watch, vol. 9(1), pages 24-40, January.
    8. Winkler Adalbert, 2015. "The ECB as Lender of Last Resort: Banks versus Governments," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 235(3), pages 329-341, June.
    9. Burdekin, Richard C.K., 2006. "Bondholder gains from the annexation of Texas and implications of the US bailout," Explorations in Economic History, Elsevier, vol. 43(4), pages 646-666, October.

    More about this item

    JEL classification:

    • N2 - Economic History - - Financial Markets and Institutions
    • N4 - Economic History - - Government, War, Law, International Relations, and Regulation
    • H1 - Public Economics - - Structure and Scope of Government
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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