Pay Your Debts: Moral Dilemmas of International Debt

Abstract

Should a government repay its international debts even if this imposes severe hardships on its citizens? Drawing on moral psychology, we investigate when people think a government is morally obligated to pay its debts. Participants read about a government that has to decide whether to default on its debt payments or cut vital programs. Across conditions, we varied the number of jobs at stake and whether a full or partial default is required to save them. Overall, most participants judged that a government should pay its debt even when the damage to the debtor is greater than the benefit to the lender. As the damage to the debtor became extreme, participants increasingly said the government should default, but they still judged that defaulting is morally wrong. In Experiment 2, we find in a national sample of Americans that political conservatives were more opposed to default than liberals. We discuss implications for policy, public opinion, and public welfare during economic downturns.