Leaders and Default

Abstract

Abstract Sovereign default is a political decision. While previous research on sovereign credit markets focuses on economic causes, domestic constraints, or international reputation to explain why states default, we focus on leaders. We argue that leaders who come to power under irregular circumstances are more likely to default. Irregular leaders are themselves more vulnerable to turnover and therefore prioritize the short-term benefits of default rather than the long-term benefits of repayment. In addition, irregular regime transitions offer new leaders a way to obfuscate responsibility, thus limiting the reputational costs of default. Our analysis of sovereign defaults and leadership transitions from 1875 to 2015 support our claims. Across various model specifications, we find that irregular leadership change increases the odds of default onset by over 300 percent.