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

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  • Carlos Álvarez-Nogal
  • Christophe Chamley

Abstract

type="main"> 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," Economic History Review, Economic History Society, vol. 67(1), pages 192-213, February.
    • Handle: RePEc:bla:ehsrev:v:67:y:2014:i:1:p:192-213
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    File URL: http://hdl.handle.net/10.1111/1468-0289.12010
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    5. 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.
    6. Carlos Álvarez-Nogal & Leandro Prados de la Escosura, 2025. "Subjective well-being and inequality in Spain’s decline," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 19(1), pages 1-27, January.
    7. Carlos Álvarez-Nogal & Leandro Prados de la Escosura, 2025. "State Capacity and Subjective Well-Being in Early Modern Spain," Working Papers 0287, European Historical Economics Society (EHES).
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    11. Kris James Mitchener & Christoph Trebesch, 2021. "Sovereign Debt in the 21st Century," NBER Working Papers 28598, National Bureau of Economic Research, Inc.
    12. Álvarez Nogal, Carlos & 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.
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    16. 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.
    17. 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.
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    19. 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).
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    21. Álvarez Nogal, Carlos & Prados de la Escosura, Leandro, 2023. "Subjective Well-being in Spain's Decline," IFCS - Working Papers in Economic History.WH 37267, Universidad Carlos III de Madrid. Instituto Figuerola.
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    23. 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.
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