The Fiscal Autonomy of Deciders: Creditworthiness and Conflict Initiation

Liberal theory claims that the constraint taxpayers impose on military expenditure is an important mechanism through which democracy and international commerce help prevent conflict. However, leaders with affordable access to sovereign credit have often overcome this constraint by raising revenue on credit markets. By minimizing or deferring the economic burden imposed on taxpayers and the macroeconomic stress associated with alternative financing strategies, I argue that these leaders have greater autonomy to pursue an aggressive foreign policy if they so desire. Leaders that lack creditor confidence risk increased political opposition and removal from office if hostilities generate macroeconomic stress or disturb the domestic fiscal balance. They also face a higher likelihood of defeat or retreat, and the subsequent political consequences, if they pursue conflict without sufficient resources. Estimates of a heteroskedastic probit model support this hypothesis and indicate that creditworthy states initiate conflict with a greater mean probability and greater variance than their noncreditworthy counterparts.