Sovereign Defaults and Debt Restructurings: Public Capital and Fiscal Constraint Tightness
Tamon Asonuma and
Hyungseok Joo
No 323, School of Economics Discussion Papers from School of Economics, University of Surrey
Abstract:
Sovereigns' public capital and fiscal constraint tightness influence sovereign debt crises and resolution. We compile a dataset on public expenditure composition in 1975{2020 for 75 countries. We show that during sovereign debt restructurings with private external creditors, public investment (i) experiences severe decline and slow recovery, (ii) differs from public consumption and transfers, and (iii) relates with restructuring delays. We develop a theoretical model of defaultable debt that embeds endogenous public capital accumulation, expenditure composition, production and multi-round debt renegotiations. The model quantitatively shows public investment dynamics and fiscal constraint tightness delay debt settlement. Data support theoretical predictions.
JEL-codes: F34 F41 H63 (search for similar items in EconPapers)
Pages: 87 pages
Date: 2023-04
New Economics Papers: this item is included in nep-dge and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:0323
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