ENDOGENOUS CREDITOR SENIORITY AND EXTERNAL DEBT VALUES

A new aggregation scheme used to measure the sources of fiscal financi ng of indebted countries suggests that the seniority of domestic debt improved at the expense of foreign bank debt during the late 1980s. Th is paper argues that this was the revenue-maximizing response of gover nments to capital flight that drained the domestic financial ''tax bas e'' subject to indirect taxation. Empirical analysis indicates that th e profile of the sources of fiscal financing influenced external debt values. Econometric analysis implies that previous studies have neglec ted an important reason for the decline in loan values from 1985 to 19 89: higher international interest rates. [JEL E62, F34]