Bottom Up Sovereign Debt Preferences
by Alessandro Del Ponte and Matthew DiGiuseppe
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The public places an important constraint on a government’s ability to maintain sta- ble debt burdens and repay sovereign debt in times of crisis. Yet, scholars have only begun to examine how the public reasons about government debt. The nascent liter- ature finds that a mix of ego-tropic reasoning and top-down elite cues inform public attitudes on sovereign debt policy. In this paper, we propose a bottom-up explanation to complement existing theories. We argue that citizens’ preferences over sovereign debt are also driven by their attitudes toward private debt. Drawing from theories and methods from moral psychology, we propose that the link between private and public debt is similar to other folk economic beliefs that conflate how household and government budgets work. To test our argument, we conducted several preregistered studies. In Brazil and Italy, we find observational evidence that private debt attitudes are significantly correlated with citizens’ positions on public debt, and this is in part driven by their self-reported moral convictions. A survey experiment fielded in Italy finds that manipulating attitudes toward private debt changes support for public debt repayment.
IMF Survival Instincts: Risk Exposure and Design of Loan Programs
by Kathleen Brown
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When does the International Monetary Fund (IMF) play hardball? While some governments in distress are asked to make costly reforms in exchange for a bailout, others access emergency funds with ease. Previous work has attributed this variety to borrowing government characteristics; instead, I propose that the IMF's overall risk exposure determines the deal that each new borrower receives. As the global lender of last resort the goal of the IMF is to preserve financial stability, but it must also ensure its own solvency and survival. I argue that when a greater share of outstanding loans is owed by high-risk borrowers, the IMF mandates stricter policy conditions to protect itself from default. Using a new index of the IMF's risk exposure and several indicators of the design of loan conditions, I demonstrate that the IMF changes its lending behavior to protect its own balance sheet. During periods of high-risk exposure, the IMF requires that its borrowers complete more policy conditions across a broader scope of policy areas, increasing Fund control over repayment. These findings illustrate how the IMF's goal of self-preservation shapes emergency sovereign lending and contributes to ongoing debates about how bureaucratic interests influence the policy outputs of international organizations.