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Sovereign Defaults and Democracy

Author

Listed:
  • Antonis Adam

    (University of Ioannina)

  • Kostas Karanatsis

    (University of Ioannina)

Abstract

This paper examines the effect of state default on political regime and shows that state defaults are associated with autocratic polity changes. Using a dataset of 105 countries from 1824 to 2004, we find that a state default leads to a statistically significant decline in the level of democracy, as measured by the Polity IV index. To deal with endogeneity, we use an instrumental variables fixed effects estimator along with a semiparametric propensity score weighting estimator to correct for democratic dynamics prior to the default.

Suggested Citation

  • Antonis Adam & Kostas Karanatsis, 2019. "Sovereign Defaults and Democracy," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(1), pages 36-62, March.
    • Handle: RePEc:pal:compes:v:61:y:2019:i:1:d:10.1057_s41294-018-0062-8
    DOI: 10.1057/s41294-018-0062-8
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    More about this item

    Keywords

    State default; Regime Transition; Democracy; Autocracy;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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