Presidential democracies were 4.9 times more likely to default than parliamentary democracies

What types of countries are more likely to default on their sovereign debts? It is a multi-billion dollar question.  Professor Emanuel Kohlscheen has a new finding: Presidential democracies were 4.9 times more likely to default on external debts between 1976 and 2000 than parliamentary democracies.  The reason is, as he argues, that  parliamentary democracies are less likely to default on their liabilities as the confidence requirement creates a credible link between economic policies and the political survival of the executive.

Why are there serial defaulters? Quasi-experimental evidence from Constitutions (PDF file)
Abstract: Presidential democracies were 4.9 times more likely to default on external debts between 1976 and 2000 than parliamentary democracies. This paper argues that the explanation to the pattern of serial defaults among a number of sovereign borrowers lies in their constitutions (on serial defaults see Reinhart, Rogo. and Savastano (2003) and Reinhart and Rogo. (2004)). Ceteris paribus, parliamentary democracies are less likely to default on their liabilities as the confidence requirement creates a credible link between economic policies and the political survival of the executive. This link tends to strengthen the repayment commitment when politicians are opportunistic. I show that this effect is large and statistically significant in the contemporary world even when comparison is restricted to countries that are twins in terms of colonial origin, geography and economic variables. Moreover, the result persists if OECD democracies are excluded from the sample. Since the form of government of a country is typically chosen at the time of independence and highly persistent over time, constitutions can explain why debt policies in developing countries are related to individual histories.