Chile is nowadays considered to have the most successful programme of debt conversion among debtor countries. However, the Chilean debt conversion programme presents some shortcomings. In fact, as this study shows, the conversion scheme may have negative effects regarding direct foreign investment and the balance of payments
Abstract: We examine the effects that revenue windfalls from international commodity price booms have on external debt in a panel of 93 countries during the period 1970-2007. Our main finding is that increases in the international prices of exported commodity goods lead to a significant reduction in the level of external debt in democracies, but to no significant reduction in the level of external debt in autocracies. To explain this result, we show that in autocracies commodity windfalls lead to a statistically significant and quantitatively large increase in government expenditures. In democracies on the other hand government expenditures did not increase significantly. We also document that following commodity windfalls the risk of default on external debt decreased in democracies, but increased significantly in autocracies.
Debt / Richard D. Wolff -- "I consider it un-American not to have a mortgage": immigrant home ownership in Chicago / Elaine Lewinnek -- Demonizing debt, naturalizing finance / Mary Poovey -- On debt / Michael Allen Gillespie -- The growth imperative: prosperity or poverty / Joel Magnuson -- Democracy's debt: capitalism and cultural revolution / Stephen L. Gardner -- Is debt the new karma? Why America finally fell apart / Morris Berman -- Measures of time: exploring debt, imagination, and real nature / Julianne Lutz Warren -- The time of living dead species: extinction debt and futurity in Madagascar / Genese Marie Sodikoff -- Unintended consequences and the epistemology of fraud in Dickens and Hayek / Eleanor Courtemanche -- The resurrection of an economic god: Keynes becomes postmodern / Michael Tratner -- China and the United States: the bonds of debt / Donald D. Hester -- Debt's moral / Kennan Ferguson -- Debt, theft, permaculture: justice and ecological scale / Gerry Canavan
We model and calibrate the arguments in favor and against short-term and long-term debt. These arguments broadly include: maturity premium, sustainability, and service smoothing. We use a dynamic equilibrium model with tax distortions and government outlays uncertainty, and model maturity as the fraction of debt that needs to be rolled over every period. In the model, the benefits of defaulting are tempered by higher future interest rates. We then calibrate our artificial economy and solve for the optimal debt maturity for Brazil as an example of a developing country and the U.S. as an example of a mature economy. We obtain that the calibrated costs from defaulting on long-term debt more than offset costs associated with short-term debt. Therefore, short-term debt implies higher welfare levels.