Discussion paper

DP18739 Sovereign Defaults at Home and Abroad

We systematically compare sovereign defaults on debt issued externally and domestically. Defaults at home and abroad are equally frequent, and governments often default selectively. Compared to domestic defaults, external defaults are larger and
take longer to resolve. Both external and domestic defaults are often resolved through maturity extensions and coupon reductions. Face value reductions are infrequent, especially as part of domestic restructurings. Yet, domestic defaults are more punitive, as they are associated with larger creditor losses. We also document that domestic and external sovereign defaults occur in markedly different macro-financial, political and geo-economic environments. Our stylized facts inform a growing theoretical literature concerned with sovereign defaults in the presence of domestic debt markets.


Erce, A, E Mallucci and M Picarelli (2024), ‘DP18739 Sovereign Defaults at Home and Abroad‘, CEPR Discussion Paper No. 18739. CEPR Press, Paris & London. https://cepr.org/publications/dp18739