It's easier to contract than to pay: Judicial independence and US municipal default in the 19th century |
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Authors: | John A Dove |
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Institution: | Manuel H. Johnson Center for Political Economy, Troy University, 137N Bibb Graves Hall, Troy, AL 36082, United States |
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Abstract: | It is well established in the literature that an independent judiciary can act as a signal of credibility by a sovereign state and as a guarantor of creditor rights. However, to date there has been little systematic work analyzing how an independent judiciary reacts to fiscal stress and public-sector default. This article addresses that very question by evaluating how and if judicial independence affects default rates using US municipal data through the nineteenth century. Overall, the results do indicate that greater judicial independence is associated with a significantly lower likelihood of default. This channel largely occurs through the method by which a member of a state's court of last resort is selected (either appointment or popular election) and term length. |
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Keywords: | Judicial independence Default State and local public finance Judicial selection Courts Credible commitment H11 H73 H74 N21 P48 |
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