Sovereign Defaults and Democracy

Antonis Adam and Kostas Karanatsis ()
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Kostas Karanatsis: University of Ioannina

Comparative Economic Studies, 2019, vol. 61, issue 1, No 2, 36-62

Abstract: Abstract This paper examines the effect of state default on political regime and shows that state defaults are associated with autocratic polity changes. Using a dataset of 105 countries from 1824 to 2004, we find that a state default leads to a statistically significant decline in the level of democracy, as measured by the Polity IV index. To deal with endogeneity, we use an instrumental variables fixed effects estimator along with a semiparametric propensity score weighting estimator to correct for democratic dynamics prior to the default.

Keywords: State default; Regime Transition; Democracy; Autocracy (search for similar items in EconPapers)
JEL-codes: F34 O17 P16 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1057/s41294-018-0062-8

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