The Sustainable Debts of Philip II: A Reconstruction of Spain's Fiscal Position, 1560-1598

46 Pages Posted: 9 Jun 2008

See all articles by Mauricio Drelichman

Mauricio Drelichman

University of British Columbia (UBC) - Department of Economics; Canadian Institute for Advanced Research (CIFAR)

Hans-Joachim Voth

University of Zurich - UBS International Center of Economics in Society; Centre for Economic Policy Research (CEPR)

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Date Written: December 2007

Abstract

The defaults of Philip II have attained mythical status as the origin of sovereign debt crises. The king failed to honour his debts four times during his reign. In this paper, we reassess the fiscal position of Habsburg Spain. New archival evidence allows us to derive comprehensive estimates of debt and revenue. These show that primary surpluses were sufficient to make the king's debt sustainable for most of his reign. Spain's debt burden was manageable up to the 1580s, and its fiscal position only deteriorated for good after the defeat of the Invincible Armada. We also estimate fiscal policy reaction functions, and show that Spain under the Habsburgs was at least as responsible as the US in the 20th century or as Britain in the 18th century. Our results suggest that the outcome of uncertain events such as wars may have more influence on a history of default than strict adherence to fiscal rules.

Keywords: early modern history, fiscal stability, natural resources, sovereign debt, Spain, sustainability

JEL Classification: F34, H62, H63, N24, N44

Suggested Citation

Drelichman, Mauricio and Voth, Hans-Joachim, The Sustainable Debts of Philip II: A Reconstruction of Spain's Fiscal Position, 1560-1598 (December 2007). CEPR Discussion Paper No. DP6611. Available at SSRN: https://ssrn.com/abstract=1140540

Mauricio Drelichman

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada

Canadian Institute for Advanced Research (CIFAR) ( email )

180 Dundas Street West, Suite 1400
Toronto, Ontario
Canada

Hans-Joachim Voth (Contact Author)

University of Zurich - UBS International Center of Economics in Society ( email )

Raemistrasse 71
Zuerich, 8006
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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