(Revised September 2026)

Do sovereign debt ceilings matter if countries keep breaching or raising them? This paper proposes a new sovereign default model with long-term debt in which each government inherits a previously announced ceiling that it can breach by paying a cost and announces a new ceiling for the following period. This friction generates a state-dependent form of intermediate commitment. The ceiling mitigates debt dilution at the expense of fiscal flexibility. We show that ceilings that are backed by high breach costs lead to welfare gains. Conversely, when costs are low, impatient governments are tempted to gamble by promising tight ceilings that they then frequently breach. This can lead to welfare losses even relative to having no rule. Our contribution is to provide a positive theory of debt ceilings as endogenous, costly-to-breach commitment devices in sovereign debt markets.