Journal of Economic Literature Vol. 47 No. 3 2009

The Economics and Law of Sovereign Debt and Default

Ugo Panizza¹; Federico Sturzenegger²; Jeromin Zettelmeyer³

¹ United Nations Conference on Trade and Development and the Graduate Institute, Geneva. · ² Universidad Torcuato di Tella and Banco Ciudad. · ³ International Monetary Fund and European Bank for Reconstruction and Development.

Abstract

This paper surveys the recent literature on sovereign debt and relates it to the evolution of the legal principles underlying the sovereign debt market and the experience of the most recent debt crises and defaults. It finds limited support for theories that explain the feasibility of sovereign debt based on either external sanctions or exclusion from the international capital market and more support for explanations that emphasize domestic costs of default. The paper concludes that there remains a case for establishing institutions that reduce the cost of default but the design of such institutions is not a trivial task.

DOI

10.1257/jel.47.3.651

Volume

47

Issue

3

Pages

651-698

Language

en

Sources

openalex crossref

Cite

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