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Sovereign debt: election concerns and the democratic disadvantage

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Sovereign debt : election concerns and the democratic disadvantage. / Dhillon, Amrita; Pickering, Andrew; Sjöström, Tomas.

In: Oxford Economic Papers, Vol. 71, No. 2, 04.2019, p. 320-343.

Research output: Contribution to journalArticle

Harvard

Dhillon, A, Pickering, A & Sjöström, T 2019, 'Sovereign debt: election concerns and the democratic disadvantage', Oxford Economic Papers, vol. 71, no. 2, pp. 320-343. https://doi.org/10.1093/oep/gpy036

APA

Dhillon, A., Pickering, A., & Sjöström, T. (2019). Sovereign debt: election concerns and the democratic disadvantage. Oxford Economic Papers, 71(2), 320-343. https://doi.org/10.1093/oep/gpy036

Vancouver

Dhillon A, Pickering A, Sjöström T. Sovereign debt: election concerns and the democratic disadvantage. Oxford Economic Papers. 2019 Apr;71(2):320-343. https://doi.org/10.1093/oep/gpy036

Author

Dhillon, Amrita ; Pickering, Andrew ; Sjöström, Tomas. / Sovereign debt : election concerns and the democratic disadvantage. In: Oxford Economic Papers. 2019 ; Vol. 71, No. 2. pp. 320-343.

Bibtex Download

@article{1b8ca14caaeb48d691d18709065fc473,
title = "Sovereign debt: election concerns and the democratic disadvantage",
abstract = "We re-examine the concept of 'democratic advantage' in sovereign debt ratings when optimal repayment policies are time-inconsistent. If democratically elected politicians are unable to make credible commitments, then default rates are inefficiently high, so democracy potentially confers a credit market disadvantage. Institutions that are shielded from political pressure may ameliorate the disadvantage by adopting a more farsighted perspective. Using a numerical measure of institutional farsightedness obtained from the Global Insight Business Risk and Conditions database, we find that the observed relationship between credit ratings and democratic status is strongly conditional on farsightedness. With myopic institutions, democracy is associated with worsened credit ratings on average by about three investment grades. With farsighted institutions there is, if anything, a democratic advantage.",
author = "Amrita Dhillon and Andrew Pickering and Tomas Sj{\"o}str{\"o}m",
year = "2019",
month = "4",
doi = "10.1093/oep/gpy036",
language = "English",
volume = "71",
pages = "320--343",
journal = "Oxford Economic Papers",
issn = "0030-7653",
publisher = "Oxford University Press",
number = "2",

}

RIS (suitable for import to EndNote) Download

TY - JOUR

T1 - Sovereign debt

T2 - election concerns and the democratic disadvantage

AU - Dhillon, Amrita

AU - Pickering, Andrew

AU - Sjöström, Tomas

PY - 2019/4

Y1 - 2019/4

N2 - We re-examine the concept of 'democratic advantage' in sovereign debt ratings when optimal repayment policies are time-inconsistent. If democratically elected politicians are unable to make credible commitments, then default rates are inefficiently high, so democracy potentially confers a credit market disadvantage. Institutions that are shielded from political pressure may ameliorate the disadvantage by adopting a more farsighted perspective. Using a numerical measure of institutional farsightedness obtained from the Global Insight Business Risk and Conditions database, we find that the observed relationship between credit ratings and democratic status is strongly conditional on farsightedness. With myopic institutions, democracy is associated with worsened credit ratings on average by about three investment grades. With farsighted institutions there is, if anything, a democratic advantage.

AB - We re-examine the concept of 'democratic advantage' in sovereign debt ratings when optimal repayment policies are time-inconsistent. If democratically elected politicians are unable to make credible commitments, then default rates are inefficiently high, so democracy potentially confers a credit market disadvantage. Institutions that are shielded from political pressure may ameliorate the disadvantage by adopting a more farsighted perspective. Using a numerical measure of institutional farsightedness obtained from the Global Insight Business Risk and Conditions database, we find that the observed relationship between credit ratings and democratic status is strongly conditional on farsightedness. With myopic institutions, democracy is associated with worsened credit ratings on average by about three investment grades. With farsighted institutions there is, if anything, a democratic advantage.

UR - http://www.scopus.com/inward/record.url?scp=85064172581&partnerID=8YFLogxK

U2 - 10.1093/oep/gpy036

DO - 10.1093/oep/gpy036

M3 - Article

VL - 71

SP - 320

EP - 343

JO - Oxford Economic Papers

JF - Oxford Economic Papers

SN - 0030-7653

IS - 2

ER -

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