Democracy, public debt transparency, and sovereign creditworthiness

Ben Cormier

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Democratic Advantage (DA) arguments explicitly and implicitly assume that democracies have more transparent public debt, enhancing sovereign creditworthiness. This study questions the assumed link between transparent public debt practices and democracy in developing countries. It finds that such practices, which are crucial for investors, (a) do not depend on democratic governance and (b) largely erase the effect that DA variables regime type, rule of law, and property rights have on creditworthiness. In other words, transparent public debt and democracy should not be assumed to go together, and transparent debt practices affect creditworthiness more than DA variables. The findings identify public debt transparency as a statistical and theoretical confounder for current iterations of the DA thesis, which must be addressed to better understand the relationship between democratic governance and sovereign creditworthiness. The policy implication is to not assume that transparent public debt practices are only available to democracies.

JEL-codes: E6 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2023-01-01
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Published in Governance, 1, January, 2023, 36(1), pp. 209 - 231. ISSN: 0952-1895

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