The Political Economy of Sovereign Default
Theory and Empirics
What do self-interested governments’ needs to maintain loyal groups of supporters imply for sovereign incentives to repay debt? Many sovereign defaults have occurred at relatively low levels of debt, while some highly indebted nations continue to honour their obligations. This poses a problem for traditional models of sovereign debt, which rely on the threat of economic sanctions to explain why and when a representative agent seeking to maximise social welfare would choose debt-repayment. The ...
Note de l’éditeur
Cover AFP / DDP / Photo: Sascha Schuermann.
Éditeur : Graduate Institute Publications
Lieu d’édition : Genève
Publication sur OpenEdition Books : 21 août 2012
ISBN numérique : 978-2-940503-08-7
DOI : 10.4000/books.iheid.509
Collection : eCahiers de l’Institut | 15
Année d’édition : 2012
ISBN (Édition imprimée) : 978-2-940503-07-0
Annexe
What do self-interested governments’ needs to maintain loyal groups of supporters imply for sovereign incentives to repay debt? Many sovereign defaults have occurred at relatively low levels of debt, while some highly indebted nations continue to honour their obligations. This poses a problem for traditional models of sovereign debt, which rely on the threat of economic sanctions to explain why and when a representative agent seeking to maximise social welfare would choose debt-repayment. The political-economy model of sovereign default developed in this ePaper shows that those governments that depend on small groups of loyalists drawn from large populations are more likely to default on sovereign debt than those governments dependent on large groups of supporters. These findings contribute to a growing body of literature on the importance of institutions in sovereign debt and default.
Sebastian Hohmann holds a Masters degree in International Economics from the Graduate Institute of International and Development Studies (Geneva) and a BA in European Studies from King's College (London), with a year spent at the IEP in Paris. He has worked for the German NGO Medico International, the German Development Institute and the Kiel Institute for the World Economy. His research interests include sovereign debt, political economy and panel data econometrics. Since 2012, he has been working with children and young adults for the British NGO Restless Development in Uganda.
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