“Debt Sustainability in Historical Perspective: The Role of Fiscal Repression”

This paper examines the debt history of two contenders for European hegemony: 16 century Spain and 18 century Britain. We analyse their fiscal behavior using measures of overborrowing and fiscal policy functions. Our results suggest that stringency was not key for Britain’s success in avoiding default. Instead, fiscal repression allowed the UK to borrow at below-market rates, thereby outspending its continental rivals. (JEL: E4, F41, N23) * We thank Leandro Prados de la Escosura, Sergio Schmuckler and Jaume Ventura for valuable discussions, and Isaac Holloway for research assistance. Participants at the 2007 EEA meetings in Budapest as well as an anonymous referee helped us to clarify our argument. This research was supported by SSHRC, by CREI (Barcelona) and the Spanish Ministry of Education.