Public Choice

, 138:387

Political institutions and debt crises


DOI: 10.1007/s11127-008-9364-0

Cite this article as:
Van Rijckeghem, C. & Weder, B. Public Choice (2009) 138: 387. doi:10.1007/s11127-008-9364-0


This paper shows that political institutions matter in explaining defaults on external and domestic debt obligations. We explore a large number of political and macroeconomic variables using a non-parametric technique to predict safety from default. The advantage of this technique is that it is able to identify patterns in the data that are not captured in standard probit analysis. We find that political factors matter, and do so in different ways for democratic and non-democratic regimes, and for domestic and external debt. In democracies, a parliamentary system or sufficient checks and balances almost guarantee the absence of default on external debt when economic fundamentals or liquidity are sufficiently strong. In dictatorships, high stability and tenure play a similar role for default on domestic debt.


Sovereign debt crisesPolitical institutionsEarly warning systems

JEL Classification


Copyright information

© Springer Science+Business Media, LLC 2008

Authors and Affiliations

  1. 1.Sabanci UniversityIstanbulTurkey
  2. 2.University of Mainz and CEPRMainzGermany