Post by fireopal on Jun 17, 2011 9:53:04 GMT 4
Strategic Sovereign Defaults Under International Sanctions
Carlo De Bassa Scheresberg
Francesco Passarelli
Bocconi University; University of Teramo
April 1, 2011
Paolo Baffi Centre Research Paper No. 2011-90
Abstract:
Embargoes tend to undermine political stability. We present a model in which sanctioned regimes may avoid overthrow by refusing to honor their public debts in order to re-gain internal support. This strategy is effective if the share of foreign debt is larger than the minimum share of the population which is required to support the regime. By adopting an innovative instrumental variable to control for confounding factors, empirical results indicate that sanctions are actually quite effective in shortening leader's survival in office, but debt defaults may mitigate the destabilizing effect. When the scope for internal financial transfers is particularly narrow, debt repudiation reduces chances of regime overthrow. Lastly, we report evidence against the hypothesis that sanctions play an enforcing role against sovereign debt repudiation.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1847751_code962400.pdf?abstractid=1847751&mirid=2
Carlo De Bassa Scheresberg
Francesco Passarelli
Bocconi University; University of Teramo
April 1, 2011
Paolo Baffi Centre Research Paper No. 2011-90
Abstract:
Embargoes tend to undermine political stability. We present a model in which sanctioned regimes may avoid overthrow by refusing to honor their public debts in order to re-gain internal support. This strategy is effective if the share of foreign debt is larger than the minimum share of the population which is required to support the regime. By adopting an innovative instrumental variable to control for confounding factors, empirical results indicate that sanctions are actually quite effective in shortening leader's survival in office, but debt defaults may mitigate the destabilizing effect. When the scope for internal financial transfers is particularly narrow, debt repudiation reduces chances of regime overthrow. Lastly, we report evidence against the hypothesis that sanctions play an enforcing role against sovereign debt repudiation.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1847751_code962400.pdf?abstractid=1847751&mirid=2