TY - JOUR
T1 - Reputational Recovery under Political Instability
T2 - Public debt in Portugal, 1641-1682
AU - Costa, Leonor Freire
AU - Miranda, Susana Münch
N1 - info:eu-repo/grantAgreement/FCT/3599-PPCDT/PTDC%2FHAR-HIS%2F28809%2F2017/PT#
PTDC/HAR-HIS/28809/2017
PY - 2022/11/9
Y1 - 2022/11/9
N2 - This article examines the reputation recovery of Portugal's public debt during the war of liberation against the former Habsburg ruler. Using novel datasets on long- and short-term debt and nominal interest rates, this study provides evidence that the sovereign borrower used debt credibility to build a pact of regime in a revolutionary context with implications for financing the war. The Portuguese kings followed an implicit budget balance rule as a reputational scheme, which made Portugal an exceptional case of military success with a low debt-to-GDP ratio and low interest rates. These conclusions contribute to the literature in various attributes of war finance, debt management, and state-making by showing that default avoidance could be as important to military success as fiscal capacity.
AB - This article examines the reputation recovery of Portugal's public debt during the war of liberation against the former Habsburg ruler. Using novel datasets on long- and short-term debt and nominal interest rates, this study provides evidence that the sovereign borrower used debt credibility to build a pact of regime in a revolutionary context with implications for financing the war. The Portuguese kings followed an implicit budget balance rule as a reputational scheme, which made Portugal an exceptional case of military success with a low debt-to-GDP ratio and low interest rates. These conclusions contribute to the literature in various attributes of war finance, debt management, and state-making by showing that default avoidance could be as important to military success as fiscal capacity.
KW - Self-enforced constraints
KW - Absolutist regime
KW - Credible commitment
KW - Debt sustainability
KW - Interest rates
KW - Perpetuities
U2 - https://doi.org/10.1111/ehr.13217
DO - https://doi.org/10.1111/ehr.13217
M3 - Article
SN - 0013-0117
SP - 1
EP - 22
JO - The Economic History Review
JF - The Economic History Review
ER -