Sovereign Debt, Government Myopia, and the Financial Sector
What determines the sustainability of sovereign debt? We develop a model where myopic governments seek popularity but can nevertheless commit credibly to service external debt. They do not default when debt is low because they would lose access to debt markets and be forced to reduce spending; they...
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| Veröffentlicht in: | The Review of financial studies 2013-06, Vol.26 (6), p.1526-1560 |
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| container_end_page | 1560 |
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| container_issue | 6 |
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| container_title | The Review of financial studies |
| container_volume | 26 |
| creator | Acharya, Viral V. Rajan, Raghuram G. |
| description | What determines the sustainability of sovereign debt? We develop a model where myopic governments seek popularity but can nevertheless commit credibly to service external debt. They do not default when debt is low because they would lose access to debt markets and be forced to reduce spending; they do not default as debt builds up and net new borrowing becomes difficult, because of the adverse consequences from default to the domestic financial sector. More myopic governments default less often, but tax in a more distortionary way and increase the vulnerability of the domestic financial sector to future government debt default. |
| doi_str_mv | 10.1093/rfs/hht011 |
| format | Article |
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| fulltext | fulltext |
| identifier | ISSN: 0893-9454 |
| ispartof | The Review of financial studies, 2013-06, Vol.26 (6), p.1526-1560 |
| issn | 0893-9454 1465-7368 |
| language | eng |
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| source | Business Source Complete; JSTOR Archive Collection A-Z Listing; Oxford University Press Journals All Titles (1996-Current) |
| subjects | Capital market Debt capacity Debt market Debt repayment Default Economic models Economic theory Endowments External debt Financial analysis Financial investments Financial services Government bonds Government spending Loan defaults Public debt Sovereign debt Studies Sustainability Tax rates |
| title | Sovereign Debt, Government Myopia, and the Financial Sector |
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