Hostname: page-component-cd9895bd7-7cvxr Total loading time: 0 Render date: 2024-12-29T05:36:31.642Z Has data issue: false hasContentIssue false
  • English
  • Français

Sovereign credit and political survival in democracies

Published online by Cambridge University Press:  04 March 2018

Matthew DiGiuseppe  and
Patrick E. Shea
Get access Rights & Permissions [Opens in a new window]

Abstract

Models of distributive politics often assume that fixed budgets constrain the efforts of incumbents to retain power. Yet, significant variation exists in politicians' abilities to push distributive costs forward by funding current fiscal policy through sovereign borrowing. This article theorizes how and when variation in sovereign credit access influences the central goal of democratic incumbents: political survival. Credit allows incumbents to reward supporters without immediately extracting domestic revenue. Excessive borrowing, however, risks higher interest rates or possible market exclusion. Considering sovereign borrowing's benefits and costs, we argue that the marginal effect of credit access on political survival is greatest for those incumbents that require other parties to implement fiscal policy. An analysis of incumbent party tenure in seventy-one democracies from 1977–2007 demonstrates that affordable sovereign finance is associated with longer tenures under divided government but has no significant effect on survival under unified governments.

Keywords

Sovereign creditpolitical survivaldebt markets
Type
Research Article
Information
Business and Politics , Volume 20 , Issue 3 , September 2018 , pp. 360 - 389
Copyright
Copyright © V.K. Aggarwal 2018 and published under exclusive license to Cambridge University Press 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Abbas, S. M. Ali, Belhocine, Nazim, El-Ganainy, Asmaa, and Horton, Mark. 2011. “Historical Dataset on Debt.” IMF Economic Review 59 (November): 717–42.Google Scholar
Alesina, Alberto and Drazen, Allan. 1991. “Why are Stabilizations Delayed?” American Economic Review 82 (4): 1170–88.Google Scholar
Alt, James E. and Lassen, David Dreyer. 2006. “Transparency, Political Polarization, and Political Budget Cycles in OECD Countries.” American Journal of Political Science 50 (3): 530–50.Google Scholar
Alt, James E. and Lowery, Robert C.. 1994. “Divided Government, Fiscal Institutions, and Budget Deficits: Evidence from teh States.” American Political Science Review 88 (4): 811–28.Google Scholar
Bäck, Hanna and Lindvall, Johannes. 2015. “Commitment Problems in Coalitions: A New Look at the Fiscal Policies of Multi-Party Governments.” Political Science Research and Methods 3 (1): 53–72.Google Scholar
Banzhaf, H. Spencer and Oates, Wallace E.. 2013. “On Fiscal Illusion and Ricardian Equivalence in Local Public Finance.” National Tax Journal 66 (3): 511–40.Google Scholar
Barro, Robert. 1979. “On the Determination of the Public Debt.” Journal of Political Economy 87 (5): 940–71.Google Scholar
Bawn, Kathleen and Rosenbluth, Frances. 2006. “Short versus Long Coalitions: Electoral Accountability and the Size of the Public Sector.” American Journal of Political Science 50 (2): 251–65.Google Scholar
Beaulieu, Emily, Cox, Gary W., and Saiegh, Sebastian. 2012. “Sovereign Debt and Regime Type:Reconsidering the Democratic Advantage.” International Organization 66 (4): 709–38.Google Scholar
Beck, Thorsten, Clarke, George, Groff, Alberto, Keefer, Philip, and Walsh, Patrick. 2001. “New Tools in Comparative Political Economy: The Database of Political Institutions.” World Bank Economic Review 15 (1): 165–76.Google Scholar
Bernanke, Ben. 1990. “On the Predictive Power of Interest Rates and Interest Rate Spreads.” New England Economic Review November/December: 51–68.Google Scholar
Biglaiser, Glen and Staats, Joseph L.. 2012. “Finding the Democratic Advantage” in Sovereign Bond Ratings: The Importance of Strong Courts, Property Rights Protection and the Rule of Law.” International Organization 66 (3): 515–35.Google Scholar
Block, Steven A. and Vaaler, Paul M.. 2004. “The price of democracy: sovereign risk ratings, bond spreads and political business cycles in developing countries.” Journal of International Money and Finance 23: 917–46.Google Scholar
Box-Steffensmeier, Janet M. and Jones, Bradford S.. 2004. Event History Modeling: A guide for social scientists. Cambridge, United Kingdom: Cambridge University Press.Google Scholar
Breen, Michael and McMenamin, Iain. 2013. “Political Institutions, Credible Commitments, and Sovereign Debt in Advanced Economies.” International Studies Quarterly 57 (4): 842–54.Google Scholar
Brooks, Robert, Faff, Robert W., Hillier, David, and Hillier, Joseph. 2004. “The national market impact of sovereign rating changes.” Journal of Banking & Finance 28 (1): 233–50.Google Scholar
Brooks, Sarah, Cunha, Raphael, and Mosley, Layna. 2015. “Categories, Creditworthiness, and Contagion: How Investors’ Shortcuts Affect Sovereign Debt Markets.” International Studies Quarterly 59 (3): 587–601.Google Scholar
Buchanan, James M. 1976. “Barro on the Ricardian Equivalence Theorem.” Journal of Political Economy 84 (2): 337–42.Google Scholar
Campello, Daniela and Zucco, Cesar Jr. 2016. “Presidential Success and the World Economy.” The Journal of Politics 78 (2): 589–602.Google Scholar
Cantor, Richard and Packer, Frank. 1996. “Determinants and Impact of Sovereign Credit Ratings.” Economic Policy Review October: 37–53.Google Scholar
Cheibub, Jose Antonio, Gandi, Jennifer, and Vreeland, James Raymond. 2010. “Democracy and Dictatorship Revisited.” Public Choice 143: 67–101.Google Scholar
Clay, K. Chad and DiGiuseppe, Matthew. 2017. “The Physical Consequences of Fiscal Flexibility: Sovereign Credit and Physical Integrity Rights.” British Journal of Political Science 47 (4): 783–807.Google Scholar
Crespo-Tenorio, Adriana, Jensen, Nathan M., and Rosas, Guillermo. 2014. “Political Liabilities: Surviving Banking Crises.” Comparative Political Studies 47 (7): 1047–74.Google Scholar
Curtis, K. Amber, Jupille, Joseph, and Leblang, David. 2015. “Iceland on the Rocks: The Mass Political Economy of Sovereign Debt Resettlement.” International Organization forthcoming.Google Scholar
DiGiuseppe, Matthew and Shea, Patrick. 2015. “Sovereign Credit and the Fate of Leaders: Reassessing the ‘Democratic Advantage.’” International Studies Quarterly 59 (3): 557–70.Google Scholar
DiGiuseppe, Matthew and Shea, Patrick. 2016. “Borrowed Time: Sovereign Finance, Regime Type, and Leader Survival.” Economics & Politics 28 (3): 342–67.Google Scholar
DiGiuseppe, Matthew R, Barry, Colin M., and Frank, Richard W.. 2012. “Good for the money: International finance, state capacity, and internal armed conflict.” Journal of Peace Research 49 (3): 391–405.Google Scholar
Duch, Raymond M. and Stevenson, Randolph. 2008. The Economic Vote: How Political and Economic Institutions Condition Election Results. Cambridge, United Kingdom: Cambridge University Press.Google Scholar
Elgie, Robert and McMenamin, Iain. 2008. “Political fragmentation, fiscal deficits and political institutionalisation.” Public Choice 136 (3): 255–67.Google Scholar
Eslava, Marcela. 2011. “The Political Economy of Fiscal Deficits: A Survey.” Journal of Economic Surveys 25 (4): 645–73.Google Scholar
Franzese, Robert J. 2002. Macroeconomic Policies of Developed Democracies. Ann Arbour, MI: University of Michigan Press.Google Scholar
Gleditsch, Kristian S. 2002. “Expanded Trade and GDP Data.” Journal of Conflict Resolution 46 (5).Google Scholar
Gray, Julia. 2013. The Company States Keep: International Economic Organization and Sovereign Risk in Emerging Markets. Cambridge, United Kingdom: Cambridge University Press.Google Scholar
Hallerberg, Mark. 2010. “Empirical Applicatoins of Veto Player Analysis and Institutional Effectiveness,” In Reform Processess and Policy Change. New York: Springer, 21–42.Google Scholar
Hallerberg, Mark and Marier, Patrik. 2004. “Executive Authority, the Personal Vote, and Budget Discipline in Latin American and Caribbean Countries.” American Journal of Political Science 48 (3): 571–87.Google Scholar
Hibbs, Douglas A. Jr 2000. “Bread and peace voting in US presidential elections.” Public Choice 104 (1–2): 149–80.Google Scholar
Hollyer, James R., Rosendorff, Peter, and Vreeland, James Raymond. 2014. “Measuring Transparency.” Political Analysis 22 (4): 413–34.Google Scholar
Jacobs, Alan M. and Matthew, J. Scott. 2012. “Why Do Citizens Discount the Future? Public Opinion and the Timing of Policy Consequences.” British Journal of Political Science 42 (4): 903–35.Google Scholar
LeDuc, Lawrence and Pammett, Jon H.. 2013. “The Fate of Governing Parties in Times of Economic Crisis.” Electoral Studies 32 (3): 494–99.Google Scholar
Lewis-Beck, Michael S. and Paldam, Martin. 2000. “Economic voting: an introduction.” Electoral Studies 19 (2): 113–21.Google Scholar
Longstaff, Francis A., Pan, Jun, Pedersen, Lasse H., and Singleton, Kenneth J.. 2011. “How Sovereign Is Sovereign Credit Risk?” American Economic Journal: Macroeconomics 3 (2): 75–103.Google Scholar
Martin, Lanny W. and Vanberg, Georg. 2013. “Multiparty Government, Fiscal Institutions, and Public Spending.” The Journal of Politics 75 (04): 953–67.Google Scholar
Mattes, Michaela, Leeds, Brett Ashley, and Carroll, Royce. 2015. “Leadership Turnover and Foreign Policy Change: Societal Interests, Domestic Institutions, and Voting in the United Nations.” International Studies Quarterly 59 (2): 280–90.Google Scholar
McGillivray, Fiona and Smith, Alastair. 2008. Punishing the Prince: A Theory of Interstate Relations, Political Institutions, and Leader Change. Princeton, NJ: Princeton University Press.Google Scholar
Morrison, Kevin M. 2009. “Oil, Nontax Revenue, and the Redistributional Foundations of Regime Stability.” International Organization 63 (Winter): 107–38.Google Scholar
Nadeau, Richard, Niemi, Richard G., and Yoshinaka, Antoine. 2002. “A cross-national analysis of economic voting: taking account of the political context across time and nations.” Electoral Studies 21 (3): 403–23.Google Scholar
Nordhaus, William D. 1975. “The Political Business Cycle.” Review of Economic Studies 42 (2): 169–90.Google Scholar
North, Douglass C. and Weingast, Barry R.. 1989. “Constitutions and Commitment: The Evolution of Institutional Governing Public Choice in Seventeenth-Century England.” The Journal of Economic History 49 (4): 803–32.Google Scholar
Oatley, Thomas. 2011. “The Reductionist Gamble: Open Economy Politics in the Global Economy.” International Organization 65 (2): 311–41.Google Scholar
Persson, Torsten, Roland, Gerard, and Tabellini, Guido. 2007. “Electoral rules and government spending in parliamentary democracies.” Quarterly Journal of Political Science 2 (2): 155–88.Google Scholar
Powell, G. Bingham Jr. and Whitten, Guy D.. 1993. “A cross-national analysis of economic voting: taking account of the political context.” American Journal of Political Science 37 (2): 391–414.Google Scholar
Reinhart, Carmen M. and Rogoff, Kenneth S.. 2008. This Time is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press.Google Scholar
Reinhart, Carmen M. and Rogoff, Kenneth S.. 2011. “From financial crash to debt crisis.” The American Economic Review 101 (5): 1,676–706.Google Scholar
Ricciuti, Roberto and DiLaurea, Davide. 2003. “An Experimental Analysis of Two Departures from Ricardian Equivalence.” Economics Bulletin 8 (11): 1–11.Google Scholar
Roubini, Nouriel and Sachs, Jeffery E.. 1989. “Political and Economic Determinants of Budget Deficits in the Industrial Democracies.” European Economic Review 33: 903–38.Google Scholar
Saiegh, Sebastian M. 2009. “Coalition Governments and Sovereign Debt Crises.” Economics & Politics 21 (2): 232–54.Google Scholar
Schaechter, Andrea, Kinda, Tidiane, Budina, Nina, and Weber, Anke. 2012. “Fiscal Rules in Response to the Crisis: Toward the ‘Next Generation’ Rules, A New Dataset.” IMF Working Paper.Google Scholar
Schultz, Kenneth and Weingast, Barry. 2003. “The Democratic Advantage: Institutional Foundations of Financial Power in International Competition.” International Organization 57 (4): 3–42.Google Scholar
Seater, John J. 1993. “Ricardian Equivalence.” Journal of Economic Literature 31 (2): 142–90.Google Scholar
Shea, Patrick E. and Solis, Jonathan A.. 2017. “Leaders, Tenure, and the Politics of Sovereign Credit.” International Interactions. Published online 30 November 2017: https://doi.org/10.1080/03050629.2018.1406932:1-27.Google Scholar
Stasavage, David. 2011. States of Credit: Size, Power, and the Development of European Polities. Princeton, NJ: Princeton University Press.Google Scholar
Tsebelis, George. 2002. Veto Players: How Political Institutions Work. Princeton, NJ: Princeton University Press.Google Scholar
Tsebelis, George and Chang, Eric. 2004. “Veto Players and the Structure of Budgets in Advanced Industrialized Countries.” European Journal of Political Research 43 (3): 449–76.Google Scholar
Vaaler, Paul M., Schrage, Burkhard N., and Block, Steven A.. 2006. “Elections, Opportunism, Partisanship and Sovereign Ratings in Developing Countries.” Review of Development Economics 10 (1): 154–70.Google Scholar
Van Rijckeghem, Caroline and Weder, Beatrice. 2009. “Political institutions and debt crises.” Public Choice 138 (3): 387–408.Google Scholar
Velasco, Andres. 2000. “Debts and Deficits with Fragmented Fiscal Policymaking.” Journal of Public Economics 76 (1): 105–25.Google Scholar
Wagner, Richard E. 1976. “Revenue Structure, Fiscal Illusion, and Budgetary Choice.” Public Choice 25 (1): 41–61.Google Scholar
Weingast, Barry R., Shepsle, Kenneth A., and Johnsen, Christopher. 1981. “The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics.” The Journal of Political Economy 89 (4): 642–64.Google Scholar
Williams, Laron K. and Whitten, Guy D.. 2015. “Don't Stand So Close to Me: Spatial Contagion Effects and Party Competition.” American Journal of Political Science 59 (2): 309–25.Google Scholar
Wooldridge, Jeffrey M. 2001. Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press.Google Scholar
Wyplosz, Charles. 2014. “Fiscal Rules: Theoretical Issues and Historical Experiences.” In Fiscal Policy After the Financial Crisis, edited by Alesina, Alberto and Giavazzi, Francesco. Chicago, IL: University of Chicago, 495–529.Google Scholar
Supplementary material: PDF

DiGiuseppe and Shea supplementary material

Appendix

Download DiGiuseppe and Shea supplementary material(PDF)
PDF 1.1 MB