It's Easier to Contract than to Pay: Judicial Independence and U.S. Municipal Default in the 19th Century

39 Pages Posted: 17 Jan 2017 Last revised: 1 May 2017

See all articles by John A. Dove

John A. Dove

Troy University - Manuel H. Johnson Center for Political Economy

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 2017

Abstract

It is well established in the literature that an independent judiciary can act as a signal of credibility by a sovereign state and also as a guarantor of creditor rights. However, to date there has been little systematic work analyzing how an independent judiciary reacts to fiscal stress and public sector default. This article addresses that very question by evaluating how and if judicial independence effects default rates using U.S. municipal data through the nineteenth century. Overall, the results do indicate that greater judicial independence is associated with a significantly lower likelihood of default. This channel largely occurs through the method by which a member of a state’s court of last resort is selected (either appointment or popular election) and also term length.

Keywords: Judicial Independence, Default, State and Local Public Finance, Judicial Selection, Courts, Credible Commitment

JEL Classification: H12, H73, H74, N21, P48

Suggested Citation

Dove, John A., It's Easier to Contract than to Pay: Judicial Independence and U.S. Municipal Default in the 19th Century (April 1, 2017). Available at SSRN: https://ssrn.com/abstract=2899241 or http://dx.doi.org/10.2139/ssrn.2899241

John A. Dove (Contact Author)

Troy University - Manuel H. Johnson Center for Political Economy ( email )

Bibb Graves Hall
Troy, AL 36082
United States

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