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Debt policy under constraints: Philip II, the Cortes, and Genoese bankers

Author

Listed:
  • Carlos Álvarez-Nogal

    (Departamento de Economía - UC3M - Universidad Carlos III de Madrid [Madrid])

  • Christophe Chamley

    (PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Department of Economics - BU - Boston University [Boston])

Abstract

Under Philip II, Castile was the first country with a large nation-wide domestic public debt. A new view of that fiscal system is presented that is potentially relevant for other fiscal systems in Europe before 1800. The credibility of the debt, mostly in perpetual redeemable annuities, was enhanced by decentralized funding through taxes administered by cities making up the Realm in the Cortes. The accumulation of short-term debt depended on refinancing through long-term debt. Financial crises in the short-term debt occurred when the service of the long-term debt reached the revenues of its servicing taxes. They were not caused by liquidity crises and were resolved after protracted negotiations in the Cortes by tax increases and interest rate reductions.

Suggested Citation

  • Carlos Álvarez-Nogal & Christophe Chamley, 2014. "Debt policy under constraints: Philip II, the Cortes, and Genoese bankers," PSE-Ecole d'économie de Paris (Postprint) halshs-00941859, HAL.
    • Handle: RePEc:hal:pseptp:halshs-00941859
    DOI: 10.1111/1468-0289.12010
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    References listed on IDEAS

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    Cited by:

    1. Alberto Feenstra, 2015. "Circumventing credible commitment: GroningenÕs default and the Dutch RepublicÕs federal escape route, 1666-1761," Working Papers 0075, Utrecht University, Centre for Global Economic History.
    2. Chamley, Christophe, 2015. "Equity short-term finance under Philip II, with an option to long-term funded debt," IFCS - Working Papers in Economic History.WH wp15-02, Universidad Carlos III de Madrid. Instituto Figuerola.
    3. Pamfili Antipa & Vincent Bignon, 2018. "Whither Economic History? Between Narratives and Quantification," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(3), pages 17-36.
    4. repec:cte:whrepe:37267 is not listed on IDEAS
    5. repec:hal:spmain:info:hdl:2441/3333juqsbl8k6qn6kl3c2nkjtt is not listed on IDEAS
    6. Javier L. Arnaut, 2017. "Was Colonialism Fiscally Sustainable? An Empirical Examination of the Colonial Finances of Spanish America," Documentos de Trabajo (DT-AEHE) 1703, Asociación Española de Historia Económica.
    7. Freire Costa, Leonor & Münch Miranda, Susana & Nogues-Marco, Pilar, 2021. "Early modern financial development in the Iberian peninsula," Working Papers unige:147492, University of Geneva, Paul Bairoch Institute of Economic History.
    8. António Henriques & Nuno Palma, 2023. "Comparative European Institutions and the Little Divergence, 1385–1800," Journal of Economic Growth, Springer, vol. 28(2), pages 259-294, June.
    9. Serrano Hernández, Sergio Tonatiuh, 2023. "Debt policy in Spanish America during the seventeenth century," Explorations in Economic History, Elsevier, vol. 90(C).
    10. repec:hal:wpspec:info:hdl:2441/3333juqsbl8k6qn6kl3c2nkjtt is not listed on IDEAS
    11. Drelichman, Mauricio & Voth, Hans-Joachim, 2015. "Duplication without Constraints: Alvarez Nogal and Chamley’s Analysis of Debt Policy under Philip II," Economics working papers mauricio_drelichman-2015-, Vancouver School of Economics, revised 02 Sep 2015.
    12. repec:spo:wpecon:info:hdl:2441/3333juqsbl8k6qn6kl3c2nkjtt is not listed on IDEAS
    13. Carlos Álvarez-Nogal & Pablo Leandro Prados de la Escosura, 2023. "Subjective Well-being in Spain’s Decline," Working Papers 0235, European Historical Economics Society (EHES).
    14. Leonor Freire Costa & Susana Münch Miranda, 2023. "Reputational recovery under political instability: Public debt in Portugal, 1641–83," Economic History Review, Economic History Society, vol. 76(3), pages 871-891, August.
    15. repec:spo:wpmain:info:hdl:2441/3333juqsbl8k6qn6kl3c2nkjtt is not listed on IDEAS
    16. Víctor M. Gómez‐Blanco, 2024. "A safe asset in early modern Castile, 1543–1714," Economic History Review, Economic History Society, vol. 77(1), pages 212-243, February.
    17. Kris James Mitchener & Christoph Trebesch, 2021. "Sovereign Debt in the 21st Century," NBER Working Papers 28598, National Bureau of Economic Research, Inc.
    18. repec:spo:wpmain:info:hdl:2441/4ithmorhr18kq90pu8cm6fv3ad is not listed on IDEAS
    19. repec:hal:spmain:info:hdl:2441/4ithmorhr18kq90pu8cm6fv3ad is not listed on IDEAS
    20. Álvarez-Nogal, Carlos & Chamley, Christophe, 2016. "Philip Ii Against The Cortes And The Credit Freeze Of 1575-1577," Revista de Historia Económica / Journal of Iberian and Latin American Economic History, Cambridge University Press, vol. 34(3), pages 351-382, December.
    21. Chun‐Yu Ho & Dan Li, 2024. "Credibility building in the sovereign debt market: Evidence from prewar China," Economic History Review, Economic History Society, vol. 77(2), pages 675-702, May.
    22. De Magalhaes, Leandro & Giovannoni, Francesco, 2022. "War and the rise of parliaments," European Economic Review, Elsevier, vol. 148(C).
    23. Mitchener, Kris & Trebesch, Christoph, 2021. "Sovereign Debt in the 21st Century: Looking Backward, Looking Forward," CEPR Discussion Papers 15935, C.E.P.R. Discussion Papers.
    24. repec:cte:whrepe:wp15-07 is not listed on IDEAS

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