Our EBPM Seminar Series at the Department of Public Policy brings external academics and practitioners to discuss their ongoing research. This event series prioritizes understanding how data, observations, and ultimately evidence is approached by each researcher.
Abstract
What if governments cannot repay their loans to other countries? Our study re- evaluates debt decisions in two important ways. First, we consider a debt manage- ment strategy yet to be considered in political economy research: repaying sovereign loans with land. Second, we model the interdependencies across policy choices of gov- ernments with repayment difficulties: austerity, default – and land transactions. Our theoretical framework focuses on the distributional consequences of debt manage- ment for domestic groups, arguing that politicians will chose the debt management strategy preferred by the politically most influential group. Using new data on land transactions and simultaneous equation estimation, we find that debtors with influen- tial financial groups address debt problems through austerity and land transactions to prevent default. In contrast, governments influenced by labor groups are less likely to implement austerity measures and tend to avoid land deals — but conversely are more likely to default. Our study sheds light on how debtor governments attempt to protect political sovereignty in a context of debt diplomacy.