EconPapers    
Economics at your fingertips  
 

Distributional Incentives in an Equilibrium Model of Domestic Sovereign Default

Pablo D'Erasmo () and Enrique Mendoza ()

Journal of the European Economic Association, 2016, vol. 14, issue 1, 7-44

Abstract: Europe's debt crisis resembles historical episodes of outright default on domestic public debt about which little research exists. This paper proposes a theory of domestic sovereign default based on distributional incentives affecting the welfare of risk-averse debt and nondebtholders. A utilitarian government cannot sustain debt if default is costless. If default is costly, debt with default risk is sustainable, and debt falls as the concentration of debt ownership rises. A government favoring bond holders can also sustain debt, with debt rising as ownership becomes more concentrated. These results are robust to adding foreign investors, redistributive taxes, or a second asset.

JEL-codes: F34 E6 H63 E44 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1111/jeea.12168 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Journal Article: DISTRIBUTIONAL INCENTIVES IN AN EQUILIBRIUM MODEL OF DOMESTIC SOVEREIGN DEFAULT (2016) Downloads
Working Paper: Distributional Incentives in an Equilibrium Model of Domestic Sovereign Default (2016) Downloads
Working Paper: Distributional Incentives in an Equilibrium Model of Domestic Sovereign Default (2015) Downloads
Chapter: Distributional Incentives in an Equilibrium Model of Domestic Sovereign Default (2013)
Working Paper: Distributional Incentives in an Equilibrium Model of Domestic Sovereign Default (2013) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:14:y:2016:i:1:p:7-44.

Access Statistics for this article

More articles in Journal of the European Economic Association from European Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2020-09-15
Handle: RePEc:oup:jeurec:v:14:y:2016:i:1:p:7-44.