Working Paper: CEPR ID: DP6611
Authors: Mauricio Drelichman; Hans-Joachim Voth
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 Codes: F34; H62; H63; N24; N44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| primary surpluses (H62) | debt stabilization (H63) |
| external shocks (F69) | deterioration of fiscal position (H69) |
| temporary liquidity shocks (E44) | first three bankruptcies (K35) |
| Habsburg Spain's fiscal discipline (H69) | comparable to other major powers (P19) |
| Spain's fiscal policy (H69) | more responsible than 20th century America and 18th century Britain (N93) |