Sovereign risk: constitutions rule

This paper models the executive's choice of whether to reschedule external debt as the outcome of an intra-governmental negotiation process. The key issue the paper tries to explain is the stark difference in default rates between the group of developing countries that have presidential forms of government and those that are parliamentary (6.0%/year vs 1.6%/year). This difference is present in spite of the fact that the latter group tends to have a somewhat higher turnover of the executive. The conditions under which parliamentary democracies will deliver lower probabilities of default than presidential countries are derived in a model with opportunistic politicians. Empirically, I find that middle-income democracies with parliamentary regimes, more checks on the executive, lower turnover in leadership and coalition governments show lower default propensities.