Institutionalizing the autocratic penalty away: fiscal rules, autocracy, and sovereign financial market access

Abstract

The “democratic advantage” in access to credit markets has been vigorously researched. Recent research has found that this “autocratic disadvantage” can be partly countered by other factors. However, this research agenda has largely ignored an increasingly important type of institution of direct importance for national fiscal policy, fiscal rules. This article argues that fiscal rules alleviate the “autocratic disadvantage” in sovereign bond market access. This argument is tested on a dataset on fiscal rules and sovereign bond issuing data covering 121 countries from 1990 to 2015. The results provide substantial evidence in favor of the argument, autocracies with fiscal rules face no disadvantage in bond market access and might even be more likely to issue new government bonds than democracies.