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Sovereign Defaults and Political Regime Transitions

Author

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  • Adam, Antonis
  • Karanatsis, Konstas

Abstract

The view put forth in the present paper is that economic fluctuations emerge to change the political landscape. In this context it is hypothesized that state defaults are associated with autocratic polity changes. To support this view we use a dataset of all state defaults from 1800 to 2004 and examine the empirical validity of the hypothesis that a state default leads to a decline in the level of democracy. Then we examine 3 case studies of state defaults that are consistent with our hypothesis: Spain in 1852, Greece in 1932 and Ecuador in 2000. The econometric results and the historical analysis of the three case studies are consistent with our main hypothesis.

Suggested Citation

  • Adam, Antonis & Karanatsis, Konstas, 2016. "Sovereign Defaults and Political Regime Transitions," MPRA Paper 69062, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:69062
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    File URL: https://mpra.ub.uni-muenchen.de/69062/1/MPRA_paper_69062.pdf
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    References listed on IDEAS

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    1. Eduardo Borensztein & Ugo Panizza, 2009. "The Costs of Sovereign Default," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 683-741, November.
    2. VJeffrey A. Frankel, 2005. "Mundell-Fleming Lecture: Contractionary Currency Crashes in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 52(2), pages 149-192, September.
    3. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "A Decade of Debt," Central Banking, Analysis, and Economic Policies Book Series,in: Miguel Fuentes D. & Claudio E. Raddatz & Carmen M. Reinhart (ed.), Capital Mobility and Monetary Policy, edition 1, volume 18, chapter 4, pages 97-135 Central Bank of Chile.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
    5. Acemoglu, Daron & Johnson, Simon & Robinson, James A. & Yared, Pierre, 2009. "Reevaluating the modernization hypothesis," Journal of Monetary Economics, Elsevier, vol. 56(8), pages 1043-1058, November.
    6. Rose, Andrew K., 2005. "One reason countries pay their debts: renegotiation and international trade," Journal of Development Economics, Elsevier, vol. 77(1), pages 189-206, June.
    7. Thomas Moutos & Lambros Pechlivanos, 2013. "The Democratization of Rent Seeking in Greece," CESifo Working Paper Series 4331, CESifo Group Munich.
    8. Acemoglu,Daron & Robinson,James A., 2009. "Economic Origins of Dictatorship and Democracy," Cambridge Books, Cambridge University Press, number 9780521671422, October.
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    10. repec:cup:apsrev:v:53:y:1959:i:01:p:69-105_00 is not listed on IDEAS
    11. Jeffrey Frankel, 2005. "Contractionary Currency Crashes In Developing Countries," CID Working Papers 117, Center for International Development at Harvard University.
    12. Gabriel X. Martinez, 2006. "The political economy of the Ecuadorian financial crisis," Cambridge Journal of Economics, Oxford University Press, vol. 30(4), pages 567-585, July.
    13. John Maloney & Andrew Pickering, 2015. "Voting and the economic cycle," Public Choice, Springer, vol. 162(1), pages 119-133, January.
    14. Guillermo A. Calvo, 2003. "Explaining Sudden Stops, Growth Collapse and BOP Crises: The Case of Distortionary Output Taxes," NBER Working Papers 9864, National Bureau of Economic Research, Inc.
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    16. Luis Ignacio Jácome, 2004. "The Late 1990's Financial Crisis in Ecuador; Institutional Weaknesses, Fiscal Rigidities, and Financial Dollarization At Work," IMF Working Papers 04/12, International Monetary Fund.
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    More about this item

    Keywords

    State Default; Autocracy; Political Transitions;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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