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

Mauricio Drelichman and Hans-Joachim Voth

UBC Departmental Archives from UBC Department of Economics

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 revenue, debt, and expenditure. The data show the king’s debts were sustainable. Primary surpluses were large and rising. Our new debt series shows that Spain’s debt burden declined until the late 1580s. Spain’s fiscal position only deteriorated after the defeat of the “Invincible Armada,†and to a limited extent. Despite this deterioration, debt/GDP ratios were broadly unchanged across Philip’s reign. Spanish finances at the height of its imperial ambition compare favorably with those of other early modern fiscal states, including Britain. Our results suggest that the defaults of Philip II reflected short-term liquidity crises, and were not a sign of unsustainable debts.

Keywords: debt sustainability; serial defaults; early modern state finances (search for similar items in EconPapers)
JEL-codes: H62 H63 F34 N24 N44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-his
Date: 2007-11-06, Revised 2009-05-11

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Related works:
Working Paper: The Sustainable Debts of Philip II: A Reconstruction of Spain's Fiscal Position, 1560-1598 (2009)
Working Paper: The Sustainable Debts of Philip II: A Reconstruction of Spain's Fiscal Position, 1560-1598 (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:ubc:bricol:drelichman-07-11-06-09-33-37

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