The Sustainable Debts of Philip II: a Reconstruction of Spain’S Fiscal Position, 1560-1598*
The Sustainable Debts of Philip II: A Reconstruction of Spain’s Fiscal Position, 1560-1598* Mauricio Drelichman Hans-Joachim Voth The University of British Columbia ICREA/Universitat Pompeu Fabra and and CIFAR CEPR Abstract: The defaults of Philip II have attained mythical status as the origin of sovereign debt crises. The king failed to honor 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. JEL Classification Codes: H62, H63, F34, N24, N44 * For helpful comments, we thank Brian A’Hearn, Daron Acemoglu, Fernando Broner, Albert Carreras, Xavier Debrun, Marc Flandreau, Caroline Fohlin, Regina Grafe, Viktoria Hnatkovska, Alberto Martin, Paolo Mauro, David Mitch, Kris Mitchener, Joel Mokyr, Lyndon Moore, Roger Myerson, Kevin O’Rourke, Sevket Pamuk, Richard Portes, Angela Redish, Nathan Sussman, Alan M. Taylor, Francois Velde, Jaume Ventura, Marc Weidenmier, and Eugene White. Seminar audiences at American University, Harvard, Sciences Po, Hebrew University, UBC, UPF, UC Irvine, HEI Geneva, NYU-Stern, and Rutgers, as well as the EHA meetings in Austin, the CREI / CEPR Conference on “Crises – Past, Policy, and Theory”, CIFAR, NBER, CEPR –ESSIM, the BETA Workshop, and the Utrecht Workshop on Financial History offered advice and constructive criticism.
[Show full text]