Sovereign Spreads and the Political Leaning of Nations

Ionut Cotoc, Alok Johri and Cesar Sosa-Padilla

No 29197, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Nations with a higher propensity to elect left governments tend to pay higher and more volatile sovereign spreads. We build a sovereign default model with elections between left and right policymakers. Reelection probabilities increase with government spending, with the left having a small advantage (consistent with the data). We use variation in “election efficiency” to create model economies that elect the left more (left-leaning) or less frequently (right-leaning) in equilibrium. The left-leaning economy has a higher reluctance for fiscal austerity than the right-leaning economy, chooses higher government spending, and faces higher spreads, resulting in lower welfare.

JEL-codes: F34 F41 (search for similar items in EconPapers)
Date: 2021-08
New Economics Papers: this item is included in nep-fdg, nep-isf, nep-opm and nep-pol
Note: EFG IFM
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Sovereign Spreads and the Political Leaning of Nations (2023)
Working Paper: Sovereign Spreads and the Political Leaning of Nations (2023)
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