CARF Seminar
Thu, Jan 23, 2025
56th CARF Seminar: Sovereign Defaults and Public Investment (Capital)
Date and Time
Thursday, January 23, 2025 10:30 – 12:00
Venue
Online (Zoom)
Co-host
Macroeconomics Workshop 2024 (CIRJE)
Speaker
Tamon Asonuma (International Monetary Fund)
Title
Sovereign Defaults and Public Investment (Capital)
Abstract
Sovereigns’ public investment (capital) influences sovereign debt crises and resolutions. We compile a dataset on public expenditure composition in 1975–2020 for 75 countries. We show that during sovereign debt restructurings with private external creditors, public investment (i) experiences a severe decline and a slow recovery, (ii) differs from public consumption and transfers, and (iii) relates with restructuring delays. We develop a theoretical model of defaultable long-term debt that embeds endogenous public capital accumulation, expenditure composition, production and multi-round debt renegotiations. The modelquantitatively shows public investment dynamics delay debt settlement (i.e., “public capital accumulation delays”). Data support theoretical predictions.