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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 nationale des ponts et chaussées - 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 nationale des ponts et chaussées - 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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