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Sanctions and incentives to repudiate external debt

Carlo de Bassa, Edoardo Grillo and Francesco Passarelli
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Carlo de Bassa: Collegio Carlo Alberto, Torino, Italy
Francesco Passarelli: Università di Torino, Turin, Italy

Journal of Theoretical Politics, 2021, vol. 33, issue 2, 198-224

Abstract: 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 government’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)
Date: 2021
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DOI: 10.1177/0951629820984851

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