ABSTRACT
This chapter explores how political checks and balances affect sovereign credibility from comparing democracies and non-democracies. The literature on political checks and balances builds on the idea that a polity's ability to change or to commit to a policy depends on the separation of powers. The sovereign credibility of a country is likely to be shaped by investors' expectations about how an economy's political constraints are likely to affect their investment given the government's orientation. Investors may view excessive political constraints as just as undesirable as too few constraints. News reports about financial market responses to political constraints seem to support this belief, so that more political constraints, as occur with coalition governments, are generally translated into more hurdles in the process of making and implementing policies. For left-wing governments, credit ratings tend to increase as the degree of political constraints increases, but begin to decline once the number of veto players reaches a certain level.
