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Sovereign Defaults and Political Regime Transitions

Adam, Antonis and Karanatsis, Konstas (2016): Sovereign Defaults and Political Regime Transitions.

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Abstract

The view put forth in the present paper is that economic fluctuations emerge to change the political landscape. In this context it is hypothesized that state defaults are associated with autocratic polity changes. To support this view we use a dataset of all state defaults from 1800 to 2004 and examine the empirical validity of the hypothesis that a state default leads to a decline in the level of democracy. Then we examine 3 case studies of state defaults that are consistent with our hypothesis: Spain in 1852, Greece in 1932 and Ecuador in 2000. The econometric results and the historical analysis of the three case studies are consistent with our main hypothesis.

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