Social Polarization, Social Institutions, and Country Creditworthiness
The literature argues that the presence of multiple veto players (government decisionmakers) with polarized interests increases the credibility of sovereign commitments, but reduces the ability of governments to adjust policies in the event of exogenous shocks that jeopardize their ability to honor their commitments. In the case of sovereign lending, if the first effect prevails, countries would be regarded as more creditworthy; if the second, less. The authors address two issues. First, using measures of country creditworthiness, they ask whether the net effect of multiple veto players is positive or negative. Second, though, the authors go beyond the existing literature to argue that the net effect of multiple veto players depends on the nature of social polarization in a country. In particular, they argue that political competition is fundamentally different in countries exhibiting ethnic polarization than in countries polarized according to income or wealth. The evidence supports the prediction that multiple veto players matter more when countries are more ethnically polarized, but less when income inequality is greater.
Summary: | The literature argues that the presence
of multiple veto players (government decisionmakers) with
polarized interests increases the credibility of sovereign
commitments, but reduces the ability of governments to
adjust policies in the event of exogenous shocks that
jeopardize their ability to honor their commitments. In the
case of sovereign lending, if the first effect prevails,
countries would be regarded as more creditworthy; if the
second, less. The authors address two issues. First, using
measures of country creditworthiness, they ask whether the
net effect of multiple veto players is positive or negative.
Second, though, the authors go beyond the existing
literature to argue that the net effect of multiple veto
players depends on the nature of social polarization in a
country. In particular, they argue that political
competition is fundamentally different in countries
exhibiting ethnic polarization than in countries polarized
according to income or wealth. The evidence supports the
prediction that multiple veto players matter more when
countries are more ethnically polarized, but less when
income inequality is greater. |
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