Coalition Governments and Sovereign Debt Crises

Saiegh, Sebastián M.

doi:10.1111/j.1468-0343.2009.00344.x

Cited by 52 publications

(27 citation statements)

References 40 publications

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“…No overwhelming consensus exists in the empirical literature, but democracies appear to pay lower costs for credit (Schultz and Weingast 2003;Dincecco 2009;Saiegh 2009;Beaulieu et al 2012). 4 In a recent article, Beaulieu et al (2012) find that the "democratic advantage" exists when statistical models consider both credit access and credit prices.…”

Section: "Democratic Advantage" In Sovereign Creditmentioning

confidence: 99%

Sovereign Credit and the Fate of Leaders: Reassessing the “Democratic Advantage”

DiGiuseppe

Shea

2015

Int Stud Q

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In this article, we contend that the "democratic advantage" literature (i) exaggerates the potential political backlash from credit downgrades in democracies; and (ii) overlooks the importance of sovereign credit to nondemocratic leaders. We argue that nondemocratic regimes receive a higher marginal political benefit from credit compared to democratic regimes. Consequently, changes in credit prices or credit access affect nondemocratic leaders' tenure more than democratic leaders' tenure. To test this argument, we provide the first statistical examination of the electoral punishment mechanism of the "democratic advantage." Our duration analysis shows that credit downgrades increase nondemocratic leaders' vulnerability more than that of their democratic peers. Our research reinforces the growing concerns about the conventional views about regime type, domestic constraints, and leaders' preferences toward sovereign credit and other political processes.

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Section: "Democratic Advantage" In Sovereign Creditmentioning

confidence: 99%

Sovereign Credit and the Fate of Leaders: Reassessing the “Democratic Advantage”

DiGiuseppe

Shea

2015

Int Stud Q

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“…We solve both versions of the model numerically using the algorithm in Arellano (2005). 5 We simulate the model for 4,000 years, extract the last 2,000 years to eliminate the effects of initial conditions, and then average over 100 repetitions of this process. 6 Both versions of the model predict a much tighter negative relationship between default and output than is found in history.…”

Section: Output and Default In Theorymentioning

confidence: 99%

Do Countries Default in “Bad times”?

Tomz

Wright

2007

Journal of the European Economic Association

208

127

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This paper uses a new dataset to study the relationship between economic output and sovereign default for the period 1820–2004. We find a negative but surprisingly weak relationship between economic output in the borrowing country and default on loans from private foreign creditors. Throughout history, countries have indeed defaulted during bad times (when output was relatively low), but they have also suspended payments when the domestic economy was favorable, and they have maintained debt service in the face of adverse shocks. This constitutes a puzzle for standard theories of international debt, which predict a much tighter negative relationship as default provides partial insurance against declines in output. (JEL: F21, F34, F41)

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“…However, as noted above, recent research reveals that defaults against foreigners can also be politically popular in democracies and that borrower lemons may also default in good times (Tomz 2002(Tomz , 2007Saiegh 2005Saiegh , 2009Enderlein, Müller, and Trebesch 2012). In either case, the sample of defaulters and non-defaulters may be systematically different.…”

Section: Non-random Selectionmentioning

confidence: 99%

“…There is little agreement, however, about why this might be so. Recent literature has also focused on the domestic drivers of default (e.g., McGillivray and Smith 2008;Saiegh 2005Saiegh , 2009). In doing so it assumes that decisions to repay or default in one country are independent of similar decisions elsewhere, except to the extent that foreign decisions affect the state of the domestic economy.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

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Networked Default: Public Debt, Trade Embeddedness, and Partisan Survival in Democracies Since 1870

2014

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Sovereign default is often associated with the downfall of incumbent governments in democratic polities. Existing scholarship directs attention to the relationship between default and domestic politics and institutions rather than the broader international environment wherein repayment and default take place. We explore the possibility that the impact of a country's decision to default on partisan survival will also be shaped by the prevalence of default amongst its peers in its local network. Illustrating this line of reasoning with international trade, our results support the argument that given networked default, voters see national default as a lost strategic opportunity to elevate a country's reputation and are more inclined to punish incumbent regimes who fail to repay. These results are inconsistent with an alternative possibility -that networked default might contribute to the decay of a repayment norm and thus provide a justifiable "excuse" for default at home. Furthermore, our results are robust to alternative measures of regime governance and entropy balancing in light of systematic differences between defaulting and non-defaulting regimes. Overall, our findings point to the political interdependence of default and repayment and the need for political scientists to take greater account of network effects in analyzing the consequences of economic misbehavior. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the prior permission in writing of the publisher nor be issued to the public or circulated in any form other than that in which it is published.Requests for permission to reproduce any article or part of the Working Paper should be sent to the editor at the above address. Sovereign default is often associated with the downfall of incumbent governments in democratic polities. Existing scholarship directs attention to the relationship between default and domestic politics and institutions rather than the broader international environment wherein repayment and default take place. We explore the possibility that the impact of a country's decision to default on partisan survival will also be shaped by the prevalence of default amongst its peers in its local network. Illustrating this line of reasoning with international trade, our results support the argument that given networked default, voters see national default as a lost strategic opportunity to elevate a country's reputation and are more inclined to punish incumbent regimes who fail to repay. These results are inconsistent with an alternative possibility -that networked default might contribute to the decay of a repayment norm and thus provide a justifiable "excuse" for default at home. Furthermore, our results are robust to alternative measures of regime governance and entropy balancing in light of systematic differences between defaulting and non-defaulting regimes. Overall, our findings point to the political interdependence of default and ...

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Coalition Governments and Sovereign Debt Crises

Cited by 52 publications

References 40 publications

Sovereign Credit and the Fate of Leaders: Reassessing the “Democratic Advantage”

Sovereign Credit and the Fate of Leaders: Reassessing the “Democratic Advantage”

Do Countries Default in “Bad times”?

Networked Default: Public Debt, Trade Embeddedness, and Partisan Survival in Democracies Since 1870

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