Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/300376 
Year of Publication: 
2024
Series/Report no.: 
Cardiff Economics Working Papers No. E2024/8
Publisher: 
Cardiff University, Cardiff Business School, Cardiff
Abstract: 
We present a theory of determinants of sovereign debt stability on foreign and domestic markets. Besides the two traditional factors - debt size and output contractions, we highlight the role of the third factor: distortionary tax, which hinders the government's ability to freely raise revenues. We emphasise the impact of tax distortions and output fluctuations on the trade-off between domestic and foreign debt stability. The paper explains why outright defaults in domestic debt are rare, despite its significant share in public debt, and provides insights into optimal debt issuance and taxation strategies.
Subjects: 
sovereign debt
debt stability
selective default
debt composition
distortionary tax
JEL: 
F34
G15
H63
Document Type: 
Working Paper

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