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Sanctions and incentives to repudiate external debt

Author

Listed:
  • Carlo de Bassa

    (Collegio Carlo Alberto, Torino, Italy)

  • Edoardo Grillo

    (Collegio Carlo Alberto, Turin, Italy)

  • Francesco Passarelli

    (Università di Torino, Turin, Italy)

Abstract

Often foreign countries levy sanctions in the attempt to foment discontent with a hostile government. But sanctions may provoke costly reactions by the leaders of the target country. This paper presents a model in which sanctions exhaust the target country economically and impair its government’s fiscal capacity. Then, an office-motivated leader may find it convenient to default on foreign debt in order to free resources that she can invest to regain internal political support. The default thus becomes a defensive tool to partially dampen the internal political turmoil sanctions generate.

Suggested Citation

  • Carlo de Bassa & Edoardo Grillo & Francesco Passarelli, 2021. "Sanctions and incentives to repudiate external debt," Journal of Theoretical Politics, , vol. 33(2), pages 198-224, April.
    • Handle: RePEc:sae:jothpo:v:33:y:2021:i:2:p:198-224
    DOI: 10.1177/0951629820984851
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    References listed on IDEAS

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    1. Edoardo Grillo & Antonio Nicolò, 2022. "Learning it the hard way: Conflicts, economic sanctions and military aids," "Marco Fanno" Working Papers 0284, Dipartimento di Scienze Economiche "Marco Fanno".

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