This paper investigates the relationship between external indebtedness and economic growth, with a particular attention to LICs, for which the theoretical arguments of debt overhang and liquidity constraint have to be reconsidered. The estimation of a growth model, with a panel of 121 developing...

Sovereign risk is defined as a country?s ability-to-pay and willingness-to-pay its debt. This paper examines how cabinet reshuffles affecting the ministry of finance or economics are perceived by sovereign bond holders in twelve Latin American countries from 1992 to 2005. We find that such...

Credit rating agencies are frequently criticized for producing sovereign ratings that do not accurately reflect the economic and political fundamentals of rated countries. This article discusses how the home country of rating agencies could affect rating decisions as a result of political...

In recent years, the number of theoretical models on sovereign default exploded. I take a step back and investigate how good our current theoretical understanding of real world sovereign debt crisis really is. This is done by deriving implications that are hard wired into our models and...

The Great Recession has sent debt levels to a post-WWII high for several advanced economies, reviving the discussion of fiscal consolidation. This paper assesses the macroeconomic implications of tax-based versus spending-based consolidation within the framework of a New Keynesian model with...

We consider a model of redistributive politics in which politicians have the possibility to raise some debt and to implement a pie-increasing reform, i.e. a reform creating a net increase in the total taxable endowment. The reform benefits occur in the future and the reform costs have to be paid...

We examine debt-sensitive majority rules. According to such a rule, the higher a planned public debt, the higher the necessary parliamentary majority to approve it. In a two-period model, we compare debt-sensitive majority rules with the simple majority rule when individuals differ regarding...

The paper analyzes the role of governmental debt in an overlapping generations economy with stochastic production and capital accumulation. In the absence of taxation, equilibria with positive debt generically converge to debtless equilibria which are dynamically inefficient. It is shown that...

Opportunistic politicians use the composition of public debt as a signal for competence. A competent government will not issue long-term nominal debt, as optimal to balance the budget, but long-term inflation-indexed debt. We consider politicians that pursue the objective of a balanced budget...