Sovereign Debt and Regime Type: Reconsidering the Democratic Advantage

Beaulieu, Emily; Cox, Gary W.; Saiegh, Sebastián M.

doi:10.1017/s0020818312000288

Cited by 126 publications

(103 citation statements)

References 50 publications

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“…This finding, albeit robust and consistent, might suffer from the possibility of nonrandom sample selection, a concern raised by Beaulieu et al (2012) in their recent study estimating the effect of regime type on sovereign ratings. Their logic is that democracies, being more creditworthy, are more likely to submit their request for ratings in the first place, and therefore, the sample is not random, but is made up of more creditworthy democracies.…”

Section: Resultsmentioning

confidence: 72%

Transparent motives: democratic advantage in international credit markets

Kim

O’Neill

2017

J Int Relat Dev

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Do democracies have an advantage in international credit markets? According to Schultz and Weingast (2003), they do, as democratic governments can be held accountable and, thus, their commitments to pay are more credible. However, this argument does not apply to much of the developing world, in which potential lenders are often not domestic and lack the ability to punish the sovereign through domestic political institutions. Saiegh (2005) argues that there is no 'democratic advantage' in developing states, as he finds developing democracies more likely to reschedule foreign debt than non-democracies. In this paper, we also find that democratic governments are more likely to default. However, we argue that this ability to reschedule loans precisely is a democratic advantage. Democratic countries are more likely to default because they can do so without fear of being punished by global credit markets; and when they do, developing democracies are also more likely to receive credit following default. The source of this democratic advantage is transparency, which makes democratic governments credible, not only in their promises to pay, but also in their claims about their ability to pay.

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Section: Resultsmentioning

confidence: 72%

Transparent motives: democratic advantage in international credit markets

Kim

O’Neill

2017

J Int Relat Dev

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“…The coefficient for regional diffusion is positive and statistically significant, providing support for regional proliferation of mainstream technocrats expected by the literature on diffusion. This trend may in part reflect the tendency for democratic governments to appoint technocrats to improve their access to financing (Beaulieu, Cox, and Saiegh 2012;Flores, Lloyd, and Nooruddin 2016).…”

Section: Robustness Checksmentioning

confidence: 99%

Fighting Past Economic Wars: Crisis and Austerity in Latin America

Kaplan

2022

Lat. American Res. Rev.

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Political economy theory expects that changes in macroeconomic governance are often catalyzed by institutional factors, such as partisanship, elections, or International Monetary Fund (IMF) conditionality. I challenge and contextualize this view by incorporating the role of technocratic advisors into a domestic policy-making framework. I contend that presidents from countries with crisis legacies are more likely to appoint mainstream economists that pursue budget discipline. Employing an originally constructed dataset, the Index of Economic Advisors, I conduct an econometric test of sixteen Latin American countries from 1961 to 2011. I find that politicians are most likely to appoint mainstream economists who embrace fiscal rectitude in countries with inflation-crisis legacies. Furthermore, these crisis legacies are enduring given the severity of inflationary trauma relative to other types of domestic economic volatility in Latin America. In fact, these effects hold when controlling for both historical and contemporaneous shocks to unemployment.

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“…That is, do countries have the resources available to ensure that they will not default? Recent work provides evidence that democracies and countries that have the characteristics of democracy, including rule of law, respect for property rights, and constraints on executive authority have better credit ratings (Beaulieu et al, 2012;Biglaiser & Staats, 2012;Butler & Fauver, 2006). 6 Yet, governments must also be willing to repay their debt.…”

Section: Countries and Creditworthinessmentioning

confidence: 99%

“…Our initial source for the credit ratings is Beaulieu et al (2012). 14 The ratings are in the form AAA, AA, A, BBB, etc.…”

Section: Data and Variable Operationalizationmentioning

confidence: 99%

“…21 As with the ratings data, our initial source for this variable is Beaulieu et al (2012), updated to cover more years and countries based on Reinhart and Rogoff (2009) and S&P's "Sovereign Rating and Country T&C Assessment Histories." First, we include a dummy variable equal to 1 if a country has defaulted on its sovereign debt since the start of the sample.…”

Section: Control Variablesmentioning

confidence: 99%

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Sovereign credit ratings and central banks: Why do analysts pay attention to institutions?

Bodea

Hicks

2018

Economics & Politics

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This paper studies the effect of the governance of modern central banks on the ratings assigned by the credit rating agencies Standard and Poor's and Moody's. Until recently, the rating process was not public. Even still, the factors or precise methodologies used by the agencies remain uncertain and analyst judgment remains important. We argue that, given uncertainty over the future paths of countries, the quality of the central bank governance serves as a useful heuristic for a stable and favorable country trajectory. In particular, the central bank's independence signals that the government is committed to general macroeconomic stability, including debt repayment. Additionally, central bank transparency clarifies who is the principal of the bank and provides information about how the central bank understands the economy and monetary policy. Finally, tensions between the central bank and the government, as reflected by irregular turnover of central bank governors, raise doubts about countries' future prospects. Empirically, we use a variety of models, including mediation analysis, to ensure that the effect we identify stems from the central bank governance itself, as a heuristic for the future paths of countries, and not the central bank's direct contribution to the macroeconomy, as reflected in the available data.

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Sovereign Debt and Regime Type: Reconsidering the Democratic Advantage

Cited by 126 publications

References 50 publications

Transparent motives: democratic advantage in international credit markets

Transparent motives: democratic advantage in international credit markets

Fighting Past Economic Wars: Crisis and Austerity in Latin America

Sovereign credit ratings and central banks: Why do analysts pay attention to institutions?

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