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Sovereign defaults during the Great Depression: the role of fiscal fragility

Papadia, Andrea (2017) Sovereign defaults during the Great Depression: the role of fiscal fragility. Economic History Working Papers (255/2017). London School of Economics and Political Science, Economic History Department, London, UK.

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The debt crisis of the early 1930s was probably the largest and most widespread in history. The defaults of national and sub-national governments were pivotal events of the Great Depression and contributed to shaping post-World War II finance in the United States and worldwide. I study the role of a so-far largely unexplored factor - fiscal fragility - in the crisis. In order to do this, I construct and analyse a dataset comprising a new measure of default size and new estimates of the size and composition of public debts for around 25 countries. The data accounts for maturity structures, sub-national borrowing as well as other key characteristics of debt burdens. I show econometrically that the severe deterioration in public revenues experienced by national and sub-national governments in a number of countries was a key determinant of the defaults above and beyond the Great Depression income shock. Countries hardest hit by the slump were more likely to renege on their external debts at both the national and subnational level, but countries whose public revenues fell more moderately were able avoid or limit the size of default. I furthermore show that the collapse in public revenues was not part of an explicit strategy to counter the slump through an active fiscal policy. On the contrary, the evidence indicates that fiscally weak countries saw their public expenditures collapse alongside revenues.

Item Type: Monograph (Working Paper)
Official URL:
Additional Information: © 2017 The Authors
Divisions: Economic History
Subjects: H Social Sciences > HC Economic History and Conditions
JEL classification: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
F - International Economics > F3 - International Finance > F34 - International Lending and Debt Problems
H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt; Debt Management
H - Public Economics > H7 - State and Local Government; Intergovernmental Relations > H74 - State and Local Borrowing
N - Economic History > N1 - Macroeconomics and Monetary Economics; Growth and Fluctuations > N10 - General, International, or Comparative
N - Economic History > N2 - Financial Markets and Institutions > N20 - General, International, or Comparative
Date Deposited: 20 Jan 2017 14:21
Last Modified: 15 Feb 2021 00:24

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