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

42 Pages Posted: 6 Apr 2009

See all articles by Hans-Joachim Voth

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 11, 6

Abstract

The defaults of Philip II have attained mythical status as the origin of sovereign debt crises. Four times during his reign the king failed to honor his debts and had to renegotiate borrowing contracts. 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 in most scenarios. 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 influence on a history of default more than strict adherence to fiscal rules.

Keywords: Debt sustainability, Early modern economic history, Philip II, State borrowing, Debt overhang, tax reform

JEL Classification: H50, H60, E62, F34

Suggested Citation

Voth, Hans-Joachim, The Sustainable Debts of Philip II: A Reconstruction of Spain's Fiscal Position, 1560-1598 (December 11, 6). Available at SSRN: https://ssrn.com/abstract=1373750 or http://dx.doi.org/10.2139/ssrn.1373750

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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