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

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  • Mauricio Drelichman
  • Joachim Voth

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.

Suggested Citation

  • Mauricio Drelichman & Joachim Voth, 2006. "The sustainable debts of Philip II: A reconstruction of Castile's fiscal position, 1566-1596," Economics Working Papers 1121, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2009.
    • Handle: RePEc:upf:upfgen:1121
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    Keywords

    Debt sustainability; Early modern economic history; Philip II; State borrowing; Debt overhang; tax reform;
    All these keywords.

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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