Signalling creditworthiness with fiscal austerity
Gibert Rivas, Anna (Università commerciale Luigi Bocconi)

Date:	2022
Abstract:	Sovereign borrowers may tighten their fiscal stance in order to signal their creditworthiness to lenders. In a model of sovereign debt with incomplete information, I show that a trustworthy country may reduce its debt beyond the optimal level in order to separate itself from less reliable countries. Since austerity is costly, the gains in the price of debt from separating need to be high enough, as is the case when credit ratings provide very noisy signals. I proxy for the informativeness of the ratings with two model-implied variables and find empirical support for the existence of a signalling channel.
Rights:	Aquest material està protegit per drets d'autor i/o drets afins. Podeu utilitzar aquest material en funció del que permet la legislació de drets d'autor i drets afins d'aplicació al vostre cas. Per a d'altres usos heu d'obtenir permís del(s) titular(s) de drets.
Language:	Anglès
Document:	Article ; recerca ; Versió acceptada per publicar
Subject:	Credit ratings ; Fiscal austerity ; Signalling ; Sovereign debt
Published in:	European economic review, Vol. 144 (2022) , p. 104090, ISSN 0014-2921

DOI: 10.1016/j.euroecorev.2022.104090

Postprint 56 p, 1.0 MB

The record appears in these collections:
Articles > Research articles
Articles > Published articles