Tax Revolts and Sovereign Defaults

Fernando Arce, Jan Morgan and Nicolas Werquin

No 14144, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: Political crises often coincide with fiscal crises, with complex causal dynamics at play. We examine the interaction between tax revolts and sovereign risk using a quantitative structural model calibrated to Argentina. In the model, the government can be controlled by political parties with different preferences for redistribution. Households may opt to revolt in response to the fiscal decisions of the ruler. While revolts entail economic costs, they also increase the likelihood of political turnover. Our model mirrors the data by generating political crises concurrent with fiscal turmoil. Specifically, we find that our model aligns closely with the conditions observed during the Macri administration (2015-2019). We find that left-leaning parties are more prone to default upon entering office, while right-leaning parties issue more debt. Our framework explains the high deficits observed during the Macri administration as well as the sovereign default that occurred immediately after the left regained power.

Keywords: Civil unrest; Financial Crises; sovereign default; redistribution (search for similar items in EconPapers)
JEL-codes: E32 E44 F41 G01 G28 (search for similar items in EconPapers)
Date: 2025-06
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:14144

DOI: 10.18235/0013572

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