Networked Default: Public Debt, Trade Embeddedness, and Partisan Survival in Democracies Since 1870

86 Pages Posted: 10 Aug 2014 Last revised: 27 May 2015

See all articles by Jeffrey M. Chwieroth

Jeffrey M. Chwieroth

London School of Economics & Political Science (LSE)

Cohen Simpson

London School of Economics & Political Science (LSE) - Department of Methodology

Andrew Walter

University of Melbourne

Date Written: August 8, 2014

Abstract

Sovereign default is often associated with the downfall of incumbent governments in democracies. Whilst existing scholarship focuses on the relationship between default and domestic politics and institutions, here we look to the broader international environment wherein repayment and default take place. We find that the impact of sovereign default on the survival of incumbent political parties is mediated by the prevalence of default amongst those peers in a country’s local network of international trade. We argue that this effect derives from the heuristic value of networks, the rarity of default and the vividness of its perceived costs to voters. Voters perceive such foreign defaults as highlighting their costliness and thus become more inclined to punish incumbent regimes who fail to repay. This result is inconsistent with an alternative possibility — that networked default might contribute to the decay of a repayment norm and thus provide a justifiable “excuse” for default at home. Overall, our findings point to the political interdependence of repayment and default choices and the need for political scientists to take greater account of network effects in analyzing the consequences of economic misbehavior.

Keywords: Sovereign Default, Debt Crises, Political Survival, Networks, Voter Behavior

JEL Classification: D72, F34, H63, P16

Suggested Citation

Chwieroth, Jeffrey M. and Simpson, Cohen and Walter, Andrew, Networked Default: Public Debt, Trade Embeddedness, and Partisan Survival in Democracies Since 1870 (August 8, 2014). Available at SSRN: https://ssrn.com/abstract=2478057 or http://dx.doi.org/10.2139/ssrn.2478057

Jeffrey M. Chwieroth

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Cohen Simpson

London School of Economics & Political Science (LSE) - Department of Methodology ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Andrew Walter (Contact Author)

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

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