The defaults of Philip II have attained mythical status as the origin of sovereign debt crises. The king failed to honor his debts four times during his reign. In this paper, we reassess the fiscal position of Habsburg Spain. New archival evidence allows us to derive comprehensive estimates of revenue, debt, and expenditure. The data show the king’s debts were sustainable. Primary surpluses were large and rising. Our new debt series shows that Spain’s debt burden declined until the late 1580s. Spain’s fiscal position only deteriorated after the defeat of the “Invincible Armada,” and to a limited extent. Despite this deterioration, debt/GDP ratios were broadly unchanged across Philip’s reign. Spanish finances at the height of its imperial ambition compare favorably with those of other early modern fiscal states, including Britain. Our results suggest that the defaults of Philip II reflected short-term liquidity crises, and were not a sign of unsustainable debts.
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number
1121.
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