 When Governments Promise to Prioritize Public Debt: Do Markets Care?Mitu Gulati, Ugo Panizza, W Mark C Weidemaier and Gracie Willingham Journal of Financial Regulation, vol. 6, issue 1, 41-74 Abstract: During the European sovereign debt crisis of 2011–13, some nations faced with rising borrowing costs adopted commitments to treat bondholders as priority claimants. That is, if there were a shortage of funds, bondholders would be paid first. In this article, we analyse the prevalence and variety of these types of commitments and ask whether they impact borrowing costs. We examine a reform that was widely touted at the height of the Euro sovereign debt crisis in 2011, in which Spain enshrined in its constitution a strong commitment to give absolute priority to public debt claimants. We find no evidence that this reform had any impact on Spanish sovereign bond yields. By contrast, our examination of the US Commonwealth of Puerto Rico suggests that constitutional priority promises can have an impact, at least where the borrower government is subject to supervening law and legal institutions. Keywords: sovereign debt; debt sustainability; sovereign spreads; priority; constitutional promises (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oup:refreg:v:6:y::i:1:p:41-74. Access Statistics for this article Journal of Financial Regulation is currently edited by Dan Awrey, Geneviève Helleringer and Wolf-Georg Ringe More articles in Journal of Financial Regulation from Oxford University Press |
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