Credibility of economic policies depends on both the partisan preferences of political actors and on the institutional context within which policy decisions are made. In this study I have attempted to explore the link between one type of institution - representative government - and commitment to repay public debt. I have asked whether and when governments with representative assemblies might find it easier to obtain access to credit at low rates of interest. A look at the development of sovereign borrowing in Europe suggests that in examples as diverse as the medieval Italian city states, the Netherlands in the sixteenth century, and Great Britain after 1688, increased ability to borrow was linked to the development of representative political institutions.
I have considered three features of representative government that may improve policy credibility. For one, credibility may depend on the creation of constitutional checks and balances. These could include a separation of powers between legislature and executive, a bicameral legislature, or, in the language of formal political science, any constitutional provision that increases the number of veto points in a political system. I have argued that checks and balances may improve credibility, but they are neither a necessary nor a sufficient condition for this to occur. A second feature of representative government that may improve credibility involves party formation in a plural society - a society in which there are multiple political cleavages. To the extent this view is accurate, credibility of debt repayment will depend on the emergence of a cohesive majority party that includes those social groups that have an immediate interest in avoiding default. Finally, I have argued that bureaucratic delegation is a feature of representative government that can improve credibility only if interests opposed to default already have political influence in a forum such as a legislative assembly.