State dissolution, sovereign debt and default:Lessons from the UK and Ireland, 1920-1938

Nathan Foley-Fisher and Eoin McLaughlin

No 61, Working Papers from European Historical Economics Society (EHES)

Abstract: We study IrelandÕs inheritance of debt following its secession from the United Kingdom at the beginning of the twentieth century. Exploiting structural differences in bonds guaranteed by the UK and Irish governments, we can identify perceived uncertainty about fiscal responsibility in the aftermath of the sovereign breakup. We document that IrelandÕs default on intergovernmental payments was an important event. Although payments from the Irish government ceased, the UK government instructed its Treasury to continue making interest and principal repayments. As a result, the risk premium on the bonds the UK government had guaranteed fell to about zero. Our findings are consistent with persistent ambiguity about fiscal responsibility far-beyond sovereign breakup. We discuss the political and economic forces behind the Irish and UK governmentsÕ decisions, and suggest lessons for modern-day states that are eyeing dissolution.

Keywords: State dissolution; sovereign default; Irish land bonds; Dublin Stock Exchange (search for similar items in EconPapers)
JEL-codes: G15 N23 N24 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2014-08
New Economics Papers: this item is included in nep-his and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hes:wpaper:0061

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