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Sovereign Defaults and Public Investment (Capital)

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  • Tamon Asonuma

    (International Monetary Fund)

  • Hyungseok Joo

    (University of Surrey)

Abstract

Sovereigns' public investment (capital) influences sovereign debt crises and resolution. We compile a dataset on public expenditure composition in 1975{2020 for 75 countries. We show that during sovereign debt restructurings with private external creditors, public investment (i) experiences a severe decline and a slow recovery, (ii) differs from public consumption and transfers, and (iii) relates with restructuring delays. We develop a theoretical model of defaultable debt that embeds endogenous public capital accumulation, expenditure composition, production and multi-round debt renegotiations. The model quantitatively shows public investment dynamics delay debt settlement (i.e., \capital accumulation delays"). Data support theoretical predictions.

Suggested Citation

  • Tamon Asonuma & Hyungseok Joo, 2023. "Sovereign Defaults and Public Investment (Capital)," School of Economics Discussion Papers 1123, School of Economics, University of Surrey.
    • Handle: RePEc:sur:surrec:1123
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    File URL: https://repec.som.surrey.ac.uk/2023/DP11-23.pdf
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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