Supersanctions and sovereign debt repayment |
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Authors: | Kris James Mitchener Marc D Weidenmier |
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Institution: | 1. Santa Clara University, 500 El Camino Real, Santa Clara, CA 95053, USA;2. NBER, USA;3. Claremont McKenna College, 500 East Ninth Street, Claremont, CA 91711, USA |
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Abstract: | What might happen if a third-party entity had the power to implement fiscal reforms and/or punish sovereign debt defaulters? In contrast to recent history, extreme sanctions such as gunboat diplomacy and “fiscal house arrest” were used to punish debt defaulters during the period 1870–1913. We find that, after a “supersanction” was imposed, a country improved its fiscal discipline. As a result, ex ante default probabilities on new issues fell dramatically and the country spent no additional time in default. Our results suggest some type of external fiscal or monetary control may be effective in imposing discipline on serial debt defaulters. |
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Keywords: | F10 F34 G15 N10 N20 N40 |
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