INCOME DISTRIBUTION, SOVEREIGN DEBT, AND PUBLIC INVESTMENT

Cem Karayalcin and Kathryn McCollister

Economics and Politics, 2005, vol. 17, issue 3, 351-365

Abstract: We develop a political economy model of sovereign debt that shows that income inequality leads to popular pressures on the government to use foreign debt to finance a redistribution of income at the expense of productive public investment. Recognizing this fact, international lenders impose credit ceilings with the consequence that developing country borrowers invest less and grow slower.

Date: 2005
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