U.S. states are sovereign entities and can’t declare bankruptcy as cities and municipalities. This paper examines the impact of a switch in sovereign bankruptcy rules that allows declaring bankruptcy from an economics model perspective. Allowing bankruptcy increases ex-ante risks for the government to refuse repayment, but provides ex-post benefits of reducing default costs and saving federal bailouts. This paper provides a simple framework to analyze this tradeoff. Event analysis shows that an unexpected switch in bankruptcy rules that allows for bankruptcy would decrease government debt-to-GDP ratio by 9.2 percentage points, increase consumption by 0.69 percent, but increase spread by 1.1 percentage points.

The Istituto per la Ricostruzione Industriale (IRI), a state-controlled holding company, was founded in 1933. Its original mission was to prevent the collapse of Italy's largest universal banks by taking over their huge industrial shareholdings. As a consequence, the historiography traditionally associates it with the concept of ‘entrepreneurial state’. This article aims to challenge this interpretation by focusing on the ideas and actions of three prominent figures: Alberto Beneduce, the IRI's first chairman; Donato Menichella, Beneduce's right-hand man who became governor of the Bank of Italy after World War II; and Pasquale Saraceno, a technocrat who spent his entire career as one of the IRI's top managers. Beneduce and Menichella regarded the IRI as a financial intermediary open to private shareholders. To Saraceno, by contrast, the IRI was an expression of a Catholic ideology that entrusted to the state the mission of promoting the industrialization of the south. This view, which aimed at reducing regional inequalities in order to complete the country's political unification, prevailed only in the second half of the 1950s. By trying to blend profit maximization with political and social goals, this strategy sowed the seeds of the IRI's decline and eventual demise.

From 1716 to 1718, Sweden experienced a shock of liquidity when the absolutist regime of Charles XII issued large amounts of fiat coins (mynttecken) in order to finance the Great Northern War. After the death of the king in November 1718, the new parliamentary regime decided to partially default on the coins. In international literature, this episode is largely unknown, and in Swedish historiography, scholars have often claimed that the country's currency collapsed in hyperinflation. We assess the performance of the new coins by studying how prices of commodities in various geographic locations developed. We also study bookkeeping practices in order to see how accountants treated the new coins. Our results show that there was a complex relationship between prices and liquidity. Prices of products in high demand by the military increased more than other prices. Accountants did not treat mynttecken and other currencies differently in 1718. It was only after the death of the king that accountants started to differentiate between different types of coins. The value of the fiat coins was linked to the actions and the legitimacy of the royal regime, which is in line with the State theory of money.

A previously unknown pricing anomaly existed for a few years in the late 1840s in the British government bond market, in which the larger and more liquid of two very large bonds was underpriced. None of the published mechanisms explains this phenomenon. It may be related to another pricing anomaly that existed for much of the nineteenth century in which terminable annuities were significantly underpriced relative to so-called ‘perpetual’ annuities that dominated the government bond market. The reasons for these mispricings seem to lie in the early Victorian culture, since the basic economic incentives as well as laws and institutions were essentially the familiar modern ones. This provides new perspectives on the origins and nature of modern corporate capitalism.

EU Member States, particularly in the Euro Area, have been pushed to adopt more extensive and intrusive fiscal rules, but what is the evidence that the rules are succeeding? The EU level Stability and Growth Pact (SGP) has been – and remains – the most visible rule-book, but it has been complemented by a profusion of national rules and by new provisions on other sources of macroeconomic imbalance. Much of the analysis of rules has concentrated on their technical merits, but tends to neglect the political economy of compliance. This paper examines the latter, looking at compliance with fiscal rules at EU and Member State levels and at the rules-based mechanisms for curbing other macroeconomic imbalances. It concludes that politically driven implementation and enforcement shortcomings have been given too little attention, putting at risk the integrity and effectiveness of the rules.

British government bonds formed the deepest, most liquid and most transparent financial market of the nineteenth century. This article shows that those bonds had long periods, extending over decades, of anomalous behavior, in which Consols, the largest and best known of these instruments, were noticeably overpriced relative to equivalent securities which offered the same interest rate and the same guarantee of payment. This finding and similar ones for other comparable pairs of British gilts appear to provide the most extreme counterexamples documented so far to the Efficient Markets Hypothesis and to the Law of One Price, and point the way to further investigations on the origins and nature of the modern economy.

Capital regulation is critical to address distortions and externalities from intense conflicts of interest in banking and from the failure of markets to counter incentives for recklessness. The approaches to capital regulation in Basel III and related proposals are based on flawed analyses of the relevant tradeoffs. The flaws in the regulations include dangerously low equity levels, a complex and problematic system of risk weights that exacerbates systemic risk and adds distortions, and unnecessary reliance on poor equity substitutes. The underlying problem is a breakdown of governance and lack of accountability to the public throughout the system, including policymakers and economists.

This article attempts to analyse the role that the Rothschild House played in the evolution of Spanish Public Finances along the 19th Century. Therefore, it endeavours to describe an elementary chronology of the relationships between the Spanish Government and the Rothschild House during the whole Century, analysing the main financial operations they underwrote, quantifying their annual aggregate figures and, finally, trying to comment upon the different consequences of the process above mentioned. To cover these aims, we have deployed original records from the Rothschild Archives in London and Paris, their contents having been supplemented with information from National Public Records in Spain and France, and other financial institutions, namely the Bank of Spain.