EconPapers    
Economics at your fingertips  
 

Sovereign debt: election concerns and the democratic disadvantage

Amrita Dhillon, Andrew Pickering () and Tomas Sjöström
Additional contact information
Amrita Dhillon: King’s College, London
Tomas Sjöström: Rutgers University

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: We re-examine the concept of ‘democratic advantage’ in sovereign debt ratings when optimal repayment policies are time-inconsistent. If democratically elected politicians are unable to make credible commitments then default rates are inefficiently high, so democracy potentially confers a credit market disadvantage. Institutions that are shielded from political pressure may ameliorate the disadvantage by adopting a more farsighted perspective. Using a numerical measure of institutional farsightedness obtained from the Global Insight Business Risk and Conditions database, we find that the observed relationship between credit-ratings and democratic status is strongly conditional on farsightedness. With myopic institutions, democracy is associated with worsened credit ratings on average by about 3 investmentgrades. With farsighted institutions there is, if anything, a democratic advantage.

Keywords: Sovereign debt; Default; Risk premia; Autocracy; Democracy; Institutions JEL Classification: H63; F55; D72; D82; H75; O43; C72. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pol
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
https://warwick.ac.uk/fac/soc/economics/research/c ... 422-2019_dhillon.pdf

Related works:
Journal Article: Sovereign debt: election concerns and the democratic disadvantage (2019) Downloads
Working Paper: Sovereign Debt: Election Concerns and the Democratic Disadvantage (2016) Downloads
Working Paper: Sovereign Debt - Election Concerns and the Democratic Disadvantage (2016) 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:cge:wacage:422

Access Statistics for this paper

More papers in CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE) Contact information at EDIRC.
Bibliographic data for series maintained by Jane Snape ().

 
Page updated 2019-11-16
Handle: RePEc:cge:wacage:422