Political Instability and Debt Maturity

Victoria Miller ()

Economic Inquiry, 1997, vol. 35, issue 1, 12-27

Abstract: Political instability has been blamed for many poor macroeconomic outcomes, such as high inflation, unemployment, and low growth. The author proposes yet another negative consequence of political instability: political instability and polarization generate inflation uncertainty which causes the term structure to steepen, consequently political instability and polarization reduce the average maturity and increase the expected cost of debt. A model is derived which illustrates these relationships. Political instability and polarization are then proxied and shown to be inversely related to debt maturity for a sample of OECD countries. Copyright 1997 by Oxford University Press.

Date: 1997
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