The Politics of Redistribution and Sovereign Default

Scholl, Almuth

The Politics of Redistribution and Sovereign Default

Dateien

Working_Paper_No_13_2-1hylp0rl3f01o8.pdfGröße: 1.39 MBDownloads: 65

Datum

2023

Publikationstyp

Working Paper/Technical Report

Publikationsstatus

Published

Zusammenfassung

This paper studies how distributional and electoral concerns shape sovereign default incentives within a quantitative model of sovereign debt with heterogeneous agents and non-linear income taxation. The small open economy is characterized by a two-party system in which the left-wing party has a larger preference for redistribution than the right-wing party. Political turnover is the endogenous outcome of the electoral process. Fiscal policy faces a tradeoff: On the one hand, the government has incentives to finance redistribution via external debt to avoid distortionary income taxation. On the other hand, the accumulation of external debt raises the cost of borrowing. Quantitative findings suggest that the left-wing party implements a more progressive income tax, is more prone to default, and has a lower electoral support than the right-wing party due to worse borrowing conditions and the distortionary effects of income taxation. In equilibrium, electoral uncertainty raises sovereign default risk.

Fachgebiet (DDC)

330 Wirtschaft

Schlagwörter

sovereign debt and default, inequality, redistribution, political economy

Zitieren

ISO 690

SCHOLL, Almuth, 2023. The Politics of Redistribution and Sovereign Default

BibTex

@techreport{Scholl2023Polit-66577,
  year={2023},
  series={Working Paper Series / Cluster of Excellence 'The Politics of Inequality'},
  title={The Politics of Redistribution and Sovereign Default},
  number={13},
  author={Scholl, Almuth}
}

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