Paper #1121

Title:

The sustainable debts of Philip II: A reconstruction of Castile's fiscal position, 1566-1596

Authors:

Mauricio Drelichman and Joachim Voth

Date:

December 2006 (Revised: May 2009)

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-to-revenue ratios remained broadly unchanged during 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.

Keywords:

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

JEL codes:

H50, H60, E62, F34

Area of Research:

Economic and Business History

Published in:

The Journal of Economic History, December 2010, 70 (4), pp. 813-842.

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