Sanctions and incentives to repudiate external debt
Carlo de Bassa,
Edoardo Grillo and
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Carlo de Bassa: Collegio Carlo Alberto, Torino, Italy
Francesco Passarelli: UniversitÃ di Torino, Turin, Italy
Journal of Theoretical Politics, 2021, vol. 33, issue 2, 198-224
Often foreign countries levy sanctions in the attempt to foment discontent with a hostile government. But sanctions may provoke costly reactions by the leaders of the target country. This paper presents a model in which sanctions exhaust the target country economically and impair its governmentâ€™s fiscal capacity. Then, an office-motivated leader may find it convenient to default on foreign debt in order to free resources that she can invest to regain internal political support. The default thus becomes a defensive tool to partially dampen the internal political turmoil sanctions generate.
Keywords: political unrest; sanctions; external debt crisis (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:sae:jothpo:v:33:y:2021:i:2:p:198-224
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