Clientelism, Institutions and Sovereign Default

Marina Azzimonti and Nirvana Mitra

No 26-06, Working Paper from Federal Reserve Bank of Richmond

Abstract: Emerging economies exhibit pro-cyclical fiscal policy, counter-cyclical sovereign spreads, and recurrent debt crises, whereas advanced economies sustain high debt with low spreads and lower volatility in outcomes. We document that these differences are systematically related to institutional strength, measured by horizontal accountability, and to the prevalence of clientelistic allocation of public resources in a panel of 51 countries (1994-2023). We develop a dynamic political-economy model of sovereign borrowing with long-term debt in which institutional constraints discipline clientelistic transfers and shape default incentives. Variation in institutional strength generates both emerging-market and developed-economy outcomes within a unified framework and accounts for heterogeneous post-democratization trajectories in emerging markets.

Keywords: Sovereign Debt Crises; Tax Smoothing; Checks and Balances; Clientelism; Sovereign De fault; Fiscal Policy; Emerging Markets; Long-term Debt (search for similar items in EconPapers)
JEL-codes: D72 E43 E62 F34 F41 (search for similar items in EconPapers)
Pages: 73
Date: 2026-03-30
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DOI: 10.21144/wp26-06

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