Conference Agenda

This paper extends the fiscal common pool model of public debt to include an economic crisis triggered by fiscal deficit. We consider a fragmented government in a two-period model. Interest groups determine government spending in the first period. The fiscal deficit is financed by public debts, the redemption cost of which is equally shared among groups in the second period. Our extension is that there are two states of the world in the second period: crisis state and normal state.

Regarding the relationship between public debt issued and the crisis probability, we consider three scenarios: zero-risk, low-risk, and high-risk scenarios. We show that in the high-risk scenario, three cases can arise: unique corner equilibrium (zero debt issuance), unique interior equilibrium (positive issuance) and multiple equilibria. We further show that as the number of interest groups increases, the combinations of economic growth and crisis losses that lead to multiple equilibria expand.

This paper investigates whether sovereign defaults in high-debt advanced economies can be attributed to a self-fulfilling mechanism, using the Greek debt crisis as a case study. Unlike models relying on the Method of Simulated Moments, we adopt a disciplined calibration strategy within a rigorous framework incorporating long-term bonds. We analytically characterize the "Crisis Zone" and demonstrate that the baseline model fails to replicate key moments, particularly spreads, because the welfare cost of temporary market exclusion is insufficient. To address this, we introduce two extensions: a partial default mechanism and a persistent state of liquidity dry-up. The extended model successfully replicates the high debt-to-GDP ratios and significant spreads observed in Greek data. Our findings suggest that the duration of market exclusion is a primary driver of default risk, implying that effective liquidity support must be credible in duration, not just in magnitude.

This paper examines whether sovereign debt restructuring contributes to fiscal sustainability and economic growth in lower-middle income countries (LMICs). Using a panel of 48 LMICs over 2000–2023, we estimate a Difference-in-Differences model complemented by an event study design to identify average and dynamic effects of restructuring episodes.

The results show that restructuring is associated with statistically significant improvements in GDP per capita growth, with gains emerging gradually in the post-restructuring period. Pre-treatment trends are statistically indistinguishable, supporting the identification strategy.

Heterogeneity analysis finds no significant variation in effects across institutional quality levels. Interpreted through a public finance lens, the findings suggest that restoring debt sustainability may relax binding fiscal constraints and support medium-term recovery in structurally fragile economies.

Keywords: Sovereign Debt Restructuring; Fiscal Sustainability; GDP Per Capita; Lower Middle-Income Countries.

A key conflict in sovereign debt restructurings is the distribution of debt relief among creditors, who demand that the losses they face are “comparable” to those of other creditors. The matter becomes more complex when the universe of creditors is heterogeneous. The subject of “comparable treatment” (CoT) across creditors is poorly defined in theory and practice, and noticeably absent from the economics literature. We aim to fill this gap by undertaking three goals. First, we develop an economic framework to define the problem of CoT and its key inputs: debt relief, creditor heterogeneity, and loss allocation rules. Second, we explore the economic principles behind different fairness criteria by considering social planners with varying objectives. Third, we examine how current criteria to assess CoT at policy institutions match these fairness rules.