Some economists argue that as long as governments can earn the market
rate of return by saving abroad, standard reputation models cannot sup
port debt. We argue that these standard reputation models are partial
in the sense that actions of agents in one arena affect reputation in
that arena only. We develop a general model of reputation in which if
a government is viewed as untrustworthy in one relationship, this gove
rnment will be viewed as untrustworthy in other relationships. We show
that our general model of reputation can support large amounts of deb
t.