Sovereign debt and consumption smoothing

This paper shows that whether or not a sovereign can borrow to smooth consu mption depends both on how consumption smoothing is achieved, whether by co ntingent debt issuance or by contingent debt servicing, and on the penalty for debt repudiation. If a sovereign that repudiated its debt could not bor row again, but could continue to save and to dissave, then contingent debt issuance, without contingent debt servicing, cannot support a positive amou nt of uncollateralized sovereign debt. But, with this same penalty for repu diation, contingent debt servicing supports a positive amount of uncollater alized sovereign debt. (C) 1999 Elsevier Science B.V. All rights reserved. JEL classtfication: F34; H63.