Political economics of external sovereign defaults
- We develop a dynamic recursive model where political and economic decisions interact, to study how excessive debt-GDP ratios affect political sustainability of prudent fiscal policies. Rent seeking groups make political decisions – to cooperate (or not) – on the allocation of fiscal budgets (including rents) and issuance of sovereign debt. A classic commons problem triggers collective fiscal impatience and excessive debt issuing, leading to a vicious circle of high borrowing costs and sovereign default. We analytically characterize debt-GDP thresholds that foster cooperation among rent seeking groups and avoid default. Our analysis and application helps in understanding the politico-economic sustainability of sovereign rescues, emphasizing the need for fiscal targets and possible debt haircuts. We provide a calibrated example that quantifies the threshold debt-GDP ratio at 137%, remarkably close to the target set for private sector involvement in the case of Greece.
Verfasserangaben: | Carolina Achury, Christos Koulovatianos, John D. Tsoukalas |
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URN: | urn:nbn:de:hebis:30:3-382782 |
URL: | http://ssrn.com/abstract=2631418 |
DOI: | https://doi.org/10.2139/ssrn.2631418 |
Titel des übergeordneten Werkes (Englisch): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 508 |
Schriftenreihe (Bandnummer): | CFS working paper series (508) |
Verlag: | Center for Financial Studies |
Verlagsort: | Frankfurt, M. |
Dokumentart: | Arbeitspapier |
Sprache: | Englisch |
Datum der Veröffentlichung (online): | 17.07.2015 |
Datum der Erstveröffentlichung: | 17.07.2015 |
Veröffentlichende Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Datum der Freischaltung: | 08.10.2015 |
Freies Schlagwort / Tag: | EU crisis; Graccident; Grexit; incentive compatibility; international lendin; rent seeking; sovereign debt; tragedy of the commons; world interest rates |
Ausgabe / Heft: | July 2, 2015 |
Seitenzahl: | 72 |
HeBIS-PPN: | 366777777 |
Institute: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
DDC-Klassifikation: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Lizenz (Deutsch): | Deutsches Urheberrecht |