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Enough Potential Repudiation: Economic and Legal Aspects of Sovereign Debt in the Pandemic Era

Author

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  • Anna Gelpern

    (Georgetown University Law Center, Washington, DC, USA)

  • Ugo Panizza

    (Department of International Economics, Graduate Institute Geneva, Geneva, Switzerland)

Abstract
This article reviews recent economic and legal literature on sovereign debt in light of the COVID-19 shock. Most of the core theoretical contributions across the two disciplines hinge on immunity, and the sovereign borrower's consequent inability to commit to repay foreign creditors, as the distinguishing attribute of sovereignty. We highlight a persistent gap between sovereign debt theories grounded in immunity and empirical evidence that the governments of low- and middle-income countries borrow far more than theory would predict. On the other hand, the governments of advanced economies, generally viewed as outside the scope of this literature before the euro area debt crisis, have shown themselves to be far more commitment challenged than previously supposed. We conclude that the traditional split between a literature concerned with developing economy sovereigns that repudiate debt and one concerned with advanced economies that do not is no longer appropriate (if ever it was). We argue that shifting some attention away from immunity to a different attribute of sovereignty—authority—could help bridge the gap between the two literatures.

Suggested Citation

  • Anna Gelpern & Ugo Panizza, 2022. "Enough Potential Repudiation: Economic and Legal Aspects of Sovereign Debt in the Pandemic Era," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 545-570, August.
    • Handle: RePEc:anr:reveco:v:14:y:2022:p:545-570
    DOI: 10.1146/annurev-economics-051420-015731
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    Cited by:

    1. Panizza, Ugo, 2022. "Do Countries Default in Bad Times? The Role of Alternative Detrending Techniques," CEPR Discussion Papers 17216, C.E.P.R. Discussion Papers.
    2. Mattia Picarelli, 2024. "Sovereign defaults at home and abroad," Working Papers 60, European Stability Mechanism.
    3. Ugo Panizza, 2022. "Long-Term Debt Sustainability in Emerging Market Economies: A Counterfactual Analysis," IHEID Working Papers 07-2022, Economics Section, The Graduate Institute of International Studies.
    4. Powell, Andrew & Panizza, Ugo, 2023. "Debt Reduction in Latin America and the Caribbean," IDB Publications (Working Papers) 13290, Inter-American Development Bank.

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    More about this item

    Keywords

    sovereign debt; sovereign default; public debt;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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