Towards a Political-Economic Theory of Domestic Debt / Allan Drazen.

Format:

Book

Author/Creator:

Drazen, Allan.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5890.

NBER working paper series no. w5890

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1997.

Summary:

A political-economic model of the composition of government debt, that is, whether it is issued to domestic or foreign holders, is presented. The key determinant will be the political constraints on repudiation of foreign and domestic debt, which will determine the nature of the domestic political equilibrium. Economic and political factors determine the effective cost of borrowing at home or abroad, and with the ability to segment markets the government acts like a discriminating monopsonist in placing its debt. A country that expects to face a low effective foreign interest rate, reflecting the expectation that it won't be forced to repay its foreign debts in full, will be characterized by high government spending, a high government budget deficit, low domestic saving and thus a high trade balance deficit so that the domestic economy will look mismanaged in terms of a number of macroeconomic indicators. Very lenient foreign assistance programs would have the same effect.

Notes:

Print version record

January 1997.