Who Will Get the Bill? Lessons from #EconHis on Scottish Independence #indyref

16 09 2014

What would happen to the UK’s current public debt if part of the country (Scotland) became an independent state? History may provide some answers to this question, as Irish independence in 1921 raised similar questions.

The NEP-HIS Blog

State dissolution, sovereign debt and default: Lessons from the UK and Ireland, 1920-1938


Nathan FOLEY-FISHER (nathan.c.foley-fisher@frb.gov)  Federal Reserve Board

Eoin MCLAUGHLIN  (eoin.mclaughlin@st-andrews.ac.uk) University of St Andrews


We study Ireland´s inheritance of debt following its secession from the United Kingdom at the beginning of the twentieth century. Exploiting structural differences in bonds guaranteed by the UK and Irish governments, we can identify perceived uncertainty about fiscal responsibility in the aftermath of the sovereign breakup. We document that Ireland´s default on intergovernmental payments was an important event. Although payments from the Irish government ceased, the UK government instructed its Treasury to continue making interest and principal repayments. As a result, the risk premium on the bonds the UK government had guaranteed fell to about zero. Our findings are consistent with persistent ambiguity about fiscal responsibility far-beyond sovereign breakup. We discuss the political and economic forces behind the…

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