This paper explores a role for capital control policies in enhancing a sovereign’s commitment to repay its debts. I study the equilibrium of an economy in which a sovereign must finance some expenditure, is constrained by the savings decisions of domestic households, and cannot discriminate between foreign and domestic lenders. I show that capital controls are crucial for implementing an equilibrium with lending from abroad and that optimal controls exhibit threshold behavior, instituted when domestic disposable income is low. Controls impose a wedge between the bond prices faced by foreign and domestic lenders. By crowding in domestic lending, and increasing the value of repayment, the sovereign can credibly enforce future repayment. The implementation result is robust to the introduction of labor taxes and uncertainty over the cost of default. These results offer a novel rationale for procyclical capital controls, distinct from conventional theories that stipulate controls be employed countercyclically to regulate capital inflows during expansions. The optimal policy is characterized and empirical implications are discussed.

中文翻译：

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主权违约和资本管制

本文探讨了资本管制政策在增强主权债务偿还承诺方面的作用。我研究了一个经济的均衡，其中主权国家必须为一些支出提供资金，受到国内家庭储蓄决定的约束，并且不能区分外国和国内贷方。我表明资本控制对于实现与国外贷款的均衡至关重要，并且最优控制表现出阈值行为，在国内可支配收入较低时实施。控制措施在外国和国内贷方面临的债券价格之间形成了一个楔子。通过挤入国内贷款，增加还款价值，主权国家可以可靠地强制执行未来的还款。实施结果对引入劳动税和违约成本的不确定性是稳健的。这些结果为顺周期资本控制提供了一个新的理论基础，不同于传统的理论，传统理论规定在扩张期间采用逆周期控制来调节资本流入。对最优政策进行了表征并讨论了实证意义。