Acharya, Viral V.; Drechsler, Itamar; Schnabl, Philipp - National Bureau of Economic Research (NBER) - 2011
We show that financial sector bailouts and sovereign credit risk are intimately linked. A bailout benefits the economy …-financial sector to fund the bailout may be inefficient since it weakens its incentive to invest, decreasing growth. Instead, the … sovereign may choose to fund the bailout by diluting existing government bondholders, resulting in a deterioration of the …