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 the financial and war-spending policies of a state that faces a war in which defeat would result in the loss of sovereign power and in which the material consequences, conditional on avoiding defeat, are stochastic. The analysis takes explicit account of the historical...

This paper develops a formal model of war spending and external borrowing and quantifies this model for the case of the American Confederacy. Our proximate objective is to determine why the Confederacy undertook little external borrowing. We find that the moral hazard associated with war debt...