Sovereign Debt

Sovereign debt is one of the most enduring puzzles in economics. Why would anyone lend to an entity not subject to external enforcement? This chapter examines the emergence of sovereign loans, their transformation from personal to transpersonal debt, and their evolution through time. The different models that have been proposed to explain the rationale and sustainability of sovereign lending are discussed and evaluated in light of the historical record, together with a brief discussion of data sources and the political economy of debt.