Borrowed Time: Sovereign Finance, Regime Type, and Leader Survival

DiGiuseppe, Matthew; Shea, Patrick E.

doi:10.1111/ecpo.12081

Cited by 42 publications

(11 citation statements)

References 95 publications

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“…Additionally, because democracies tend to be more transparent in their release of economic and financial information, as well as policymaking processes, investors may be more confident in their ability to price risk (Campello 2015; Copelovitch, Gandrud, and Hallerberg 2018; Devlin 1989; Hollyer, Rosendorff, and Vreeland 2011). Several empirical studies establish that, via these reinforcing mechanisms, democracy leads to lower risk premiums on outstanding (secondary market) debt, lower prices for insurance against default (credit default swaps) and higher sovereign credit ratings (Beaulieu, Cox, and Saiegh 2012; DiGiuseppe and Shea 2016; North and Weingast 1989; Saiegh 2005). We confirm these democratic advantage mechanisms, conditional on global liquidity, in our empirical analyses of primary market outcomes.…”

Section: The Democratic Advantage and Its Limitsmentioning

confidence: 99%

Contingent Advantage? Sovereign Borrowing, Democratic Institutions and Global Capital Cycles

Ballard-Rosa

Mosley

Wellhausen

2019

Brit. J. Polit. Sci.

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How do domestic and global factors shape governments’ capacity to issue debt in primary capital markets? Consistent with the ‘democratic advantage’, we identify domestic institutional mechanisms, including executive constraints and policy transparency, that facilitate debt issuance rather than electoral events. Most importantly, we argue that the democratic advantage is contingent: investors’ attention to domestic politics varies with conditions in global capital markets. When global financial liquidity is low, investors are risk-averse, and political risk constrains governments’ capacity to borrow. But when global markets are flush, investors are risk-tolerant and less sensitive to political risk. We support our argument with new data on 245,000 government bond issues in primary capital markets – the point at which governments’ costs of market access matter most – for 131 sovereign issuers (1990–2016). In doing so, we highlight the role of systemic factors, which are under-appreciated in much ‘open economy politics’ research, in determining access to capital markets.

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Section: The Democratic Advantage and Its Limitsmentioning

confidence: 99%

Contingent Advantage? Sovereign Borrowing, Democratic Institutions and Global Capital Cycles

Ballard-Rosa

Mosley

Wellhausen

2019

Brit. J. Polit. Sci.

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“…Since war taxation can erode popular support for wars (Flores-Macías and Kreps 2017), states that can borrow can stave off domestic discontent more so than states unable to borrow. Similarly, with credit access, leaders have more fiscal resources to either satisfy constituents’ preferences or repress opposition (DiGiuseppe and Shea 2015; Clay and DiGiuseppe 2017; DiGiuseppe and Shea 2016). This is consistent with research that finds that creditworthy states are less likely to be domestically constrained to initiate conflict (DiGiuseppe 2015a) and are more likely to fare well during wars (Shea 2014; Poast 2015; see also Zielinski 2016).…”

Section: Selection Processes Of Strategic Financementioning

confidence: 99%

“… 19. We note that our instrument is a variant of an instrument used in DiGiuseppe and Shea (2016). As a robustness check, we use Tomz’s (2007) indicator of borrowing in the selection stage and limit our outcome stage to only states that Tomz has coded as active in the credit market.…”

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confidence: 99%

War and Default

Shea

Poast

2017

Journal of Conflict Resolution

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Sovereign borrowing is often used to cover the costs of war. This borrowing, coupled with war’s economic disruptions, strains states’ ability to honor debt promises. Contrary to conventional expectations, however, we find that default is not common after wars. To explain the relationship between war and sovereign default, this article lays out a selection effect argument: war participants are unlikely to default in the first place, while states likely to default are unable to acquire the financing necessary to fight a war. In sum, states that lack the financial means to adequately borrow avoid paths to war. After offering some examples of the selection mechanism at work, we present evidence that states unlikely to default will avoid entering the war sample. Our findings have implications for the inferences researchers make about war finance and war onset.

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“…The government fragmentation argument has been extended by some authors who link deficit bias to government overspending on public goods to buy political support. This argument has been developed by De Mesquita et al (2017), Digiuseppe andShea (2016) andSmith (2010), who argue that leaders who face the probability of being overthrown generally use public spending to ward off the threat of destabilisation and retain power. These leaders increase the supply of public goods to improve the well-being of citizens and reduce the desire for revolutionary change, or they limit the supply of coordination goods (freedom of expression or assembly, e.g.,).…”

Section: Literature Reviewmentioning

confidence: 99%

Political stability and fiscal consolidation in sub‐Saharan African countries

Yabre

Semedo

2021

World Economy

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Fiscal policy decision‐making in sub‐Saharan African countries has not always been understood, and the existing literature has generally emphasised the role of macroeconomic factors to justify government fiscal performances. This study highlights the essential role of political stability in the fiscal consolidation decision‐making process in sub‐Saharan African countries. We perform a panel logit model for twenty‐seven (27) sub‐Saharan African countries for the period 2000–15. We show that government stability increases the likelihood of fiscal consolidation as measured by the improvement in the cyclically adjusted primary balance (CAPB). This finding shows that governments that face less risk of being overthrown and enjoy institutional support from the political arena are more prone to fiscal consolidation. This result is obtained by examining different aspects of political stability, including government cohesion, popular support, legislative strength, margin of majority and legislative fractionalisation. Moreover, disaggregating fiscal policy into spending and revenue‐based strategies allows us to show that spending‐based consolidation tends to be more significantly associated with government stability than revenue‐based consolidation. Our findings are supported by various robustness checks and contribute to the ongoing efforts in sub‐Saharan countries to enhance sound fiscal policy.

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Borrowed Time: Sovereign Finance, Regime Type, and Leader Survival

Cited by 42 publications

References 95 publications

Contingent Advantage? Sovereign Borrowing, Democratic Institutions and Global Capital Cycles

Contingent Advantage? Sovereign Borrowing, Democratic Institutions and Global Capital Cycles

War and Default

Political stability and fiscal consolidation in sub‐Saharan African countries

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