Buiter, Willem and Rahbari, Ebrahim, (2013), “Why Do Governments Default, And Why Don’t They Default More Often?”, Centre for Economic Policy Research, Μάιος.
This paper considers the economic and political drivers of sovereign default, focusing on countries rich enough to render sovereign default a ‘won’t pay’ rather than a ‘can’t pay’ phenomenon. Unlike many private contracts, sovereign debt contracts rely almost exclusively on self-enforcement rather than on third-party enforcement. Among the social costs of sovereign default are contagion and concentration risk, both within and outside the jurisdiction of the sovereign, and ‘rule of law externalities’. We consider illiquidity as a separate trigger for sovereign default and emphasize the role of lenders of last resort for the sovereign.