Financing Victory: Sovereign Credit, Democracy, and War

• Published in: The Journal of conflict resolution Vol. 58; no. 5; pp. 771 - 795
• Main Author: Shea, Patrick E.
• Format: Journal Article
• Language: English
• Published: Los Angeles, CA SAGE Publications 01.08.2014; SAGE PUBLICATIONS, INC
• Subjects: Authoritarian regimes; Authoritarianism; Authoritarianism (Political Ideology); Benefits; Borrowing; Citizens; Conflict resolution; Consumer credit; Cost; Cost analysis; Cost efficiency; Cost-Benefit Analysis; Credit; Defense spending; Democracy; Economic costs; Finance; Financial Support; Interest rates; Investors; Logistics; Peacetime; Political economy; Political science; Polities; Regression analysis; Revenue; Sovereignty; Studies; Variable interest rates; War; war finance; sovereign credit; democratic advantage
• ISSN: 0022-0027; 1552-8766
• DOI: 10.1177/0022002713478567

With access to inexpensive credit, states can finance wars without overburdening their constituents, and face relatively small short-term costs compared to states with poor credit access. As a result of these economic benefits, states with lower credit costs will be more likely to win their wars, ceteris paribus. However, lower borrowing costs provide states domestic political benefits, which I argue are more important for democracies than nondemocracies. Since expensive credit forces states to rely on its citizens for revenue, governments that are more sensitive to their citizens' preferences are at a disadvantage. In sum, I argue that democracies are more sensitive to credit costs than authoritarian regimes. To test this theory, this article analyzes a data set of wars using logistic regressions and matching techniques, and examines the case of the Chaco War. The results demonstrate that the costs of borrowing have a substantial effect on war outcomes, and that these costs are more important for democracies than nondemocracies.