NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Jack Shim

New York University
Stern School of Business
44 West 4th St PhD office
New York, NY 10012

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: New York University Stern School of Business

NBER Working Papers and Publications

May 2020When is Debt Odious? A Theory of Repression and Growth Traps
with Viral V. Acharya, Raghuram Rajan: w27221
How is a developing country affected by its odious government’s ability to borrow in international markets? We examine the dynamics of a country’s growth, consumption, and sovereign debt, assuming that the government is myopic and wants to maximize short-term, socially unproductive, spending. Interestingly, access to external borrowing can extend the government’s effective horizon; the government’s ability to borrow hinges on its convincing investors they will be repaid, which gives it a stake in the future. The lengthening of the government’s effective horizon can incentivize it to tax less, resulting in higher steady-state household consumption than if it could not borrow. However, in a developing country that saves little, the government may engage in more repressive policies to enhance...
 
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