Was Colonialism Fiscally Sustainable? An Empirical Examination of the Colonial Finances of Spanish America

This paper examines the long-run fiscal sustainability of the colonial finances of Spanish America. Using econometric tests of intertemporal stability and a macroeconomic budget constraint framework, the analysis revisits how the long-run fiscal dynamics of the colonial treasuries adjusted for inflation changed over time. Findings suggest that in spite of historical breakpoints associated to major financial difficulties during wartime, in general the treasuries achieved sustainable fiscal balances. However, there was a shifting pattern of fiscal sustainability between the treasuries across the colonial period.