This paper shows that whether or not a sovereign can borrow to smooth consumption depends both on how consumption smoothing is achieved, whether by contingent debt issuance or by contingent debt servicing, and on the exact nature of the penalty for debt repudiation. If a sovereign that...

This paper analyzes a reputational equilibrium in a model in which nominally denominated sovereign debt serves to shift risk associated with the unpredictability of tax revenues from the sovereign to its lenders. The analysis answers the following set of related questions: Why would a sovereign...