Responsibility for Sovereign Debt: Theory and Empirical Investigations

Debt crises are recurrent and costly features of the world economy. When crises occur, the question of legitimacy arises: Should the current government of a debtor country be held responsible for the obligations incurred by its predecessors? The trend tow ards democracy in developing countries has made the question particularly relevant, as it could be argued that democratic governments should not have to repay dictators' debt. A world-wide movement has used such arguments in their effort to have poor coun tries' debts cancelled. More generally, the doctrine of odious debt holds that debts are not legally enforeceable if the population of a country neither consented to nor benefited from the borrowing and the creditors were aware of these facts. We aim to m ake a contribution to this debate. Our starting point will be to account for the factors that the population of a debtor country should or should not be held responsible for using liberal egalitarian theory, which implies that one is responsible for the f actors one controls. While this is a normative framework, there is ample evidence from experiments and surveys to suggest that individuals' moral concerns influence behaviour. The second and largest part of the project will investigate the extent to which considerations of debt legitimacy affect debtors' attitudes towards servicing their obligations on the one hand and creditors' attitudes towards debt relief on the other. Here we will apply regression analysis on cross-country data sets, thereby extendin g the existing empirical literature dealing with these issues. Finally, while HIPC will reduce the debt burdens of many poor countries, history teaches us that relief does not provide immunity from excessive future debts. In the last part of the project w e will study whether HIPC has made a difference in this respect in Tanzania, a poor, aid-dependent country governed by a dominant political party, through an in-depth study of the process and its aftermath.