The Sustainable Debts of Philip II: a Reconstruction of Spain's Fiscal
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 This Draft: January 2010 Abstract: The defaults of Philip II have attained mythical status as the origin of sovereign debt crises. We reassess the fiscal position of Habsburg Castile, deriving comprehensive estimates of revenue, debt, and expenditure from new archival data. The king’s debts were sustainable. Primary surpluses were large and rising. Debt/revenue ratios were broadly unchanged across Philip’s reign. Castilian finances in the sixteenth century compare favorably with those of other early modern fiscal states at the height of their imperial ambitions, including Britain. The defaults of Philip II therefore reflected short-term liquidity crises, and were not a sign of unsustainable debts. * For helpful comments, we thank Daron Acemoglu, George Akerlof, Carlos Alvarez Nogal, Fernando Broner, Albert Carreras, Marc Flandreau, Caroline Fohlin, Regina Grafe, Avner Greif, Viktoria Hnatkovska, Angela Redish, Alberto Martín, Paolo Mauro, David Mitch, Kris Mitchener, Joel Mokyr, Lyndon Moore, Roger Myerson, Kevin O’Rourke, Sevket Pamuk, Richard Portes, Leandro Prados de la Escosura, Nathan Sussman, Alan M. Taylor, Francois Velde, Jaume Ventura, and Eugene White. Seminar audiences at American University, Harvard, Sciences Po, Hebrew University, UBC, UPF, UC Irvine, LSE, HEI Geneva, NYU-Stern, the ECB, 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.
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