Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324816 
Year of Publication: 
2025
Series/Report no.: 
IDB Working Paper Series No. IDB-WP-1719
Publisher: 
Inter-American Development Bank (IDB), Washington, DC
Abstract: 
Political crises often coincide with fiscal crises, with complex causal dynamics at play. We examine the interaction between tax revolts and sovereign risk using a quantitative structural model calibrated to Argentina. In the model, the government can be controlled by political parties with different preferences for redistribution. Households may opt to revolt in response to the fiscal decisions of the ruler. While revolts entail economic costs, they also increase the likelihood of political turnover. Our model mirrors the data by generating political crises concurrent with fiscal turmoil. Specifically, we find that our model aligns closely with the conditions observed during the Macri administration (2015-2019). We find that left-leaning parties are more prone to default upon entering office, while right-leaning parties issue more debt. Our framework explains the high deficits observed during the Macri administration as well as the sovereign default that occurred immediately after the left regained power.
Subjects: 
Civil unrest
Financial crises
Sovereign default
Redistribution
JEL: 
E32
E44
F41
G01
G28
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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