This paper proposes a stylized two-period, two-country model illustrating the role of distribution of domestic wealth in determining a country's level of access to international lending. We model sovereign debt redemption policy in a common agency framework. Within this framework, policy is the outcome of the interaction between government and local and foreign interest groups with conflicting preferences on debt repayment. Our main result is that in full lobby competition, when all interests are represented, the only equilibrium solution is repudiation and the consequent inability of government to access international capital markets. Conversely, when the ability to lobby depends on wealth, governments can access international credit up to a given maximum external debt capacity, determined by the skew in the distribution of domestic wealth.

DEBORA DI, G., Ginebri, S., Laura, S. (2008). Sovereign debt capacity and the distribution of domestic wealth: A common agency approach. REVIEW OF INTERNATIONAL ECONOMICS, 16(4), 798-813 [10.1111/j.1467-9396.2008.00776.x].

Sovereign debt capacity and the distribution of domestic wealth: A common agency approach

GINEBRI, SERGIO;
2008-01-01

Abstract

This paper proposes a stylized two-period, two-country model illustrating the role of distribution of domestic wealth in determining a country's level of access to international lending. We model sovereign debt redemption policy in a common agency framework. Within this framework, policy is the outcome of the interaction between government and local and foreign interest groups with conflicting preferences on debt repayment. Our main result is that in full lobby competition, when all interests are represented, the only equilibrium solution is repudiation and the consequent inability of government to access international capital markets. Conversely, when the ability to lobby depends on wealth, governments can access international credit up to a given maximum external debt capacity, determined by the skew in the distribution of domestic wealth.
2008
DEBORA DI, G., Ginebri, S., Laura, S. (2008). Sovereign debt capacity and the distribution of domestic wealth: A common agency approach. REVIEW OF INTERNATIONAL ECONOMICS, 16(4), 798-813 [10.1111/j.1467-9396.2008.00776.x].
File in questo prodotto:
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11590/141592
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 1
  • ???jsp.display-item.citation.isi??? 1
social impact