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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Risk sharing with the monarch: contingent debt and excusable defaults in the age of Philip II, 1556–1598
Organization Unit
  • Mauricio Drelichman
  • Hans-Joachim Voth
  • English
Institution University of Zurich
Series Name Working paper series / Department of Economics
Number 145
ISSN 1664-7041
Number of Pages 41
Date 2014
Abstract Text Contingent sovereign debt can create important welfare gains. Nonetheless, there is almost no issuance today. Using hand-collected archival data, we examine the first known case of large-scale use of state-contingent sovereign debt in history. Philip II of Spain entered into hundreds of contracts whose value and due date depended on verifiable, exogenous events such as the arrival of silver fleets. We show that this allowed for effective risk-sharing between the king and his bankers. The existence of statecontingent debt also sheds light on the nature of defaults – they were simply contingencies over which Crown and bankers had not contracted previously.
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Keywords Sovereign debt, contingent debt, fiscal policy, debt crisis, Derivat, Wertpapier, Schulden, öffentliche Schulden, Philipp II. (König von Spanien,1527-1598), Geschichte