Sovereigns Re-elected Based on Economic Growth, Impacting Debt and Spreads.
The article explores how a country's economic growth affects the likelihood of its leader being reelected and the risk of defaulting on its debt. The researchers suggest that leaders who benefit personally from their position may make short-sighted decisions to stay in power. They found that strong economic growth increases the chances of a leader being reelected. By using a model that considers different growth scenarios, the researchers were able to explain why some countries have higher debt levels and interest rates than others. This study challenges previous ideas that relied on specific assumptions about discount rates and default costs.