Reputational recovery under political instability: Public debt in Portugal, 1641–83

Leonor Freire Costa, Susana Münch Miranda

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


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.

Original languageEnglish
Pages (from-to)871-891
Number of pages21
JournalEconomic History Review
Issue number3
Publication statusPublished - Aug 2023


  • Absolutist regime
  • Credible commitment
  • Debt sustainability
  • Interest rates
  • Perpetuities
  • Self-enforced constraints


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