Majandusteaduskonna teadusseminar „Sovereign Default and Government Type“ 10. aprillil
Majandusteaduskonna teadusseminar „Sovereign Default and Government Type“ toimub 10. aprillil kell 16.00-17.00 ruumis X-219.
Seminar on inglise keeles, kõik huvilised on oodatud!
Ricardo Vicente (TSEBA) will present his recent paper "Sovereign Default and Government Type".
Abstract: Strong and empirical evidence has shown that the likelihood of sovereign debt default in parliamentary democracies is smaller when the government is composed by more than one political party. One of the focal points in coalition government theory is the minimal winning coalition; however, the frequency of surplus coalitions, and minority governments in industrialized parliamentary democracies seems to contradict the theory. This paper links sovereign default empirical evidence with type of government theory. It provides a formal theoretical explanation for the coalition effect in the probability of default, and for the formation of surplus coalitions. In a stochastic endowment economy, two parties rotate in power. They have the option to invite a third party, which represents the part of society which is more directly interested in sovereign debt repayment. The presence of the smaller party in the coalition decreases the likelihood of default (coalition buys commitment), and hence, bond prices are higher. When the effect of higher bond price dominates the redistributive effect of one more party in government, bigger political parties have an incentive to form a coalition, even when this is not necessary to guarantee majority support in the legislative.
The seminar is held in English. Copies of the paper will be available at the seminar.
Everyone is welcome. Please feel free to share this invitation!
Questions regarding the seminar can be addressed to Liis Saks, liis dot saks at ttu dot ee.