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Essays on Sovereign Debt Default, Fiscal Austerity and Income Inequality

Essays on Sovereign Debt Default, Fiscal Austerity and Income Inequality
Author: Vivian Norambuena
Publisher:
Total Pages: 204
Release: 2015
Genre: Economics
ISBN:
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The second chapter explores the question of whether fiscal adjustment programs have been regressive or progressive in advanced economies. Does fiscal austerity have an adverse effect on income inequality? If this is the case, then controlling only for observed variables in the estimation of the income inequality equation would be insufficient, leading to inaccurate inference regarding the true distributional effect of a fiscal adjustment. In other words, there could be some unobserved factors influencing both the probability of a fiscal adjustment and the income distribution process. These unobserved features could be persistent over time -like deep institutional characteristics or social preferences towards inequality that have been shaped by the history, culture or demography of a country - or time-varying, such as the government's ability to implement sound fiscal policies. The main finding is that fiscal austerity significantly increases income inequality, an impact that is particularly understated when time-varying endogeneity is not accounted for. This suggests that low-income households are disproportionately bearing the costs of fiscal austerity.

Why Not Default?

Why Not Default?
Author: Jerome Roos
Publisher: Princeton University Press
Total Pages: 416
Release: 2019-02-12
Genre: Business & Economics
ISBN: 0691180105
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Jerome Roos provides a sweeping investigation of the political economy of sovereign debt and international crisis management. He takes readers from the rise of public borrowing in the Italian city-states to the gunboat diplomacy of the imperialist era and the wave of sovereign defaults during the Great Depression. He vividly describes the debt crises of developing countries in the 1980s and 1990s and sheds new light on the recent turmoil inside the Eurozone--including the dramatic capitulation of Greece's short-lived anti-austerity government to its European creditors in 2015. Drawing on in-depth case studies of contemporary debt crises in Mexico, Argentina, and Greece, Why Not Default? paints a disconcerting picture of the ascendancy of global finance.

Essays on Sovereign Debt, Governance and Inequality

Essays on Sovereign Debt, Governance and Inequality
Author: Nachiket Jayeshkumar Thakkar
Publisher:
Total Pages: 222
Release: 2019
Genre: Administrative agencies
ISBN:
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In my first chapter I follow the methodology put forth by Bohn (1998), the market-based sustainability method to measure whether the sovereign debt is sustainable or not. I work with a panel of 125 countries for 26 years and along with incorporate different institutions ratings by ICRG's political risk ratings. In my analysis I find out that the debt on average is sustainable for countries up to certain extent and thus giving us an inverted U shape debt-exports curve. I use country exports to find out if the debt is sustainable or not. I also find that better institutions do give an edge to countries when it comes to borrowing as it lowers the risk expectations on the lenders part. The findings do vary based on the country's income level and based on its geographical location. My second chapter concerns with costs that country may have to bear when they default on their debt obligation and decide to renegotiate. Here, I use the renegotiation done between the Paris Club creditors and debtor countries. My analysis follows Rose (2005) which looked into debt renegotiation till 1998. I extend the research by looking into this from 1985 to 2015 and also including the role that institutions play in determination the cost that country plays, assuming that a country with better institutions will not be punished severely when it enters debt renegotiation. Here the punishment is in the form of decline in bilateral trade between both debtor & creditor and debtor & non-creditor. In our analysis we find that there is a decline in trade between debtor-creditor by 17% in the year of renegotiation and it continues for 5 years where as for debtor-non-creditor trade it keeps on declining for next 10 years, which shows that the debtor country does divert trade from non-creditors to creditors. And the effect stays the same when we include institutions in the equation. After the recent financial crisis in 2008-2009, there has been a lot of interest in finding out the determinants of such crises and the mechanism that it follows. One such research is done by Rajan (2010) and Kumhof & Ranciere (2011) who show linkage between the increasing income inequality, increase in availability of credit to domestic private sector and probability of banking crisis. In the third chapter we analyze whether the increased income inequality is a crucial factor that leads to a banking crisis. Using data from 46 emerging economies from 1985 to 2010 we find that the probability of banking crisis increases with an expansion in domestic credit. However, we do not find any significant effect of inequality on the expansion in domestic credit. Using data from emerging market economies, our analysis does not support the causal relationship between income inequality and banking crisis through credit expansion as hypothesized in the literature.

Essays on Sovereign Debt Crisis

Essays on Sovereign Debt Crisis
Author: Michinao Okachi
Publisher:
Total Pages: 0
Release: 2017
Genre:
ISBN:
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This thesis consists of three chapters that aim to develop economic models to explain sovereign debt crises. Chapter 2 provides the dynamic general equilibrium model of endogenous sovereign default, incorporating financial intermediaries. By a government's decision to default, government bonds become non-performing and financial intermediaries eliminate them from their net worth. While other literature on endogenous default models assumes that the default state is exogenously given, only depending on TFP or endowment, the model in Chapter 2 creates a mechanism by which the default state is contingent on the amount of debt outstanding in the non-default state. Through this feature, the model quantifies the financial amplification effect on the economy and shows the phenomenon of "Too-Big-to-Default". The model explains the important features of the Argentinean default in 2001, capturing the default frequency, the debt-to-GDP ratio and moments of main variables. Chapter 3 proposes a new sovereign debt crisis model which is applicable to an advanced country, assuming the government's incapability to serve its debts rather than willingness of repayment. The fiscal limit is defined as the sum of discounted future primary surplus under the tax rate to maximize tax revenue. When the debt outstanding exceeds the fiscal limit, the government falls into debt crisis. The economic contraction in the crisis results from the exogenous tax rate and decreased imported inputs. The model replicates the high debt-to-GDP ratio, which the endogenous model cannot assume, and captures movements of important variables of the Spanish debt crisis in around 2012. Chapter 4 introduce foreign bonds based on the model in Chapter 3, for the analysis of several countries such as Greece and Ireland in which a majority of bonds is held by foreign agents. In the model, the government issues bonds for foreign investors, and that leads the outflow of domestic output. Instead of government bonds, households adopt capital for their inter-temporal utility maximization. Also, the fiscal limit is drawn from the exogenous distribution. The simulation result for the Greek economy generally explains the contraction of its economy by the crisis in around 2012 although the effect of imported inputs is overestimated and that of domestic inputs is underestimated.

Essays on Sovereign Debt and Default

Essays on Sovereign Debt and Default
Author: Jarrod E. Hunt
Publisher:
Total Pages:
Release: 2014
Genre: Economics
ISBN:
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This dissertation is comprised of two essays focused on the central theme of sovereign default. In the first essay, I detail a method to improve forecasting models of sovereign default by evaluating the impact of a country's composition of debt. For my second essay, I assess the long-horizon impact of a sovereign default episode on a country's economic volatility. A country's external debt relative to gross domestic product is positively associated with the probability of being in default. Aggregate measures of external debt are commonly used for this type of risk analysis. However, based on the details of each loan, there are numerous subsets of external debt. Using a dataset of 32 developing countries from 1971-2010, I find that short-term debt, commercial bank loans, and concessional debt owed to other countries are the categories responsible for the positive relationship between the aggregate and the probability of being in default. In addition to isolating the categories driving the relationship between total external debt and sovereign default, I distinguish between the associated impact of each debt category on the probability of entering default and the probability of prolonging default. This is an important distinction as some subsets, such as bonds and multilateral concessional debt, are only related to the probability of entering default, while others, such as the use of IMF credit, are only significant when a country is already in default. Additionally, I find that short-term debt, commercial bank loans, and concessional bilateral debt positively affect both the probability of entering default as well as the probability of remaining in default. Focusing on the composition of external debt provides a more complete picture of the effect of debt on the probability of default, allowing for more precise forecasts of default probabilities. In my second chapter, I evaluate the impact of sovereign default on the volatility of gross domestic product, a relationship related to two strands of literature: one focused on the impact of sovereign default on output and another that evaluates the impact of economic volatility on growth in output. In addition to bridging the gap between the existing strands of literature, the dataset and techniques employed in this analysis offer advantages over those currently in use. First, the use of the Beveridge-Nelson decomposition addresses issues encountered by other, common trend-cycle decomposition methods. Second, this dataset, which spans 1870-2008, includes more sovereign default episodes per country, allowing for a richer region-specific evaluation. Using a dataset of 7 South American countries, I find that the volatility of output decreases following a sovereign default episode. Taking advantage of the considerable longitudinal dimension, I am also able to assess the impact of volatility on economic growth by looking at different sub-periods. I show evidence that from 1870-1959, economic volatility is positively related to growth while from 1960-2008, a commonly used time period in the literature, there is no effect. These findings suggest that volatility's influence on economic growth may change over time.

Austerity

Austerity
Author: Mark Blyth
Publisher: Oxford University Press
Total Pages: 305
Release: 2015
Genre: Business & Economics
ISBN: 0199389446
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In Austerity: The History of a Dangerous Idea, Mark Blyth, a renowned scholar of political economy, provides a powerful and trenchant account of the shift toward austerity policies by governments throughout the world since 2009. The issue is at the crux about how to emerge from the Great Recession, and will drive the debate for the foreseeable future.

Global Waves of Debt

Global Waves of Debt
Author: M. Ayhan Kose
Publisher: World Bank Publications
Total Pages: 403
Release: 2021-03-03
Genre: Business & Economics
ISBN: 1464815453
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The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.

Debt and Austerity

Debt and Austerity
Author: Jodi Gardner
Publisher: Edward Elgar Publishing
Total Pages: 352
Release: 2020-11-12
Genre:
ISBN: 9781839104343
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This book explores the complex interactions between debt and austerity, analysing the social, economic, and legal implications of governments' responses to the 2008 financial crisis. Demonstrating how the nature of debt for those on low incomes has changed radically over the last decade, the chapters provide insight into how structural inequality was exacerbated by changes in the redistributive state, the legal system, and the welfare system. The examination occurs on a number of levels and these issues are explored through the lens of power, place, and class. The authors utilize both international case studies and 'on the ground' experiences, reviewing the role of high cost credit, bailiffs, local governments, bankruptcy, and debt advice. Through the analysis of the nature and structure of debt in specific countries, it highlights important lessons for a global audience. This unique book offers a broad, multi-faceted insight into the issue of low-income debt which will greatly benefit academics in law, social policy, geography, and economics. Its focus on practical steps and potential reforms, as well as contributions from third sector organizations, will also interest practitioners, policymakers, and NGOs.

Modern Money Theory

Modern Money Theory
Author: L. Randall Wray
Publisher: Springer
Total Pages: 322
Release: 2015-09-22
Genre: Business & Economics
ISBN: 1137539925
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This second edition explores how money 'works' in the modern economy and synthesises the key principles of Modern Money Theory, exploring macro accounting, currency regimes and exchange rates in both the USA and developing nations.

IMF Conditionality

IMF Conditionality
Author: John Williamson
Publisher: MIT Press (MA)
Total Pages: 708
Release: 1983
Genre: Business & Economics
ISBN:
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The twenty-one contributions in this book assess the controversy surrounding the Fund and provide judgments about the criteria for Fund lending which should help readers understand and analyze both its ongoing role in smoothing adjustment to international payments imbalances and its currently critical position in responding to the debt crisis.