Public borrowing and crowding out in Spain (1768-1808)

In: https://hdl.handle.net/2454/24298

Open Access

Abstract

Trabajo presentado a Iberometrics VIII: Eight Iberian Cliometrics Workshop. Organizado por el Institute of Advanced Research in Business and Economics (INARBE) de la Universidad Pública de Navarra, en colaboración con Glocred y expertos de instituciones de España y Portugal. Celebrado en la Upna el 20-21 de abril de 2017. ; This paper aims at providing quantitative and qualitative evidence of a crowding out effect due to war borrowing at the end of eighteenth-century Spain. In the second section, I examine the two key links in the crowding out argument. First, did the Spanish government's issuance of debt to finance warfare result in higher real interest rates? Second, did it cause a reduction of private investment? Annual data for long-term interest rates and for government borrowing allow examination of the first link in the crowding out argument. Then, using original annual data on the volume of long-term private credit that we collected from the mortgage registry of Madrid (Contaduría de Hipotecas de Madrid), we examine the second link of the argument. In the third section, this paper analyses structural changes in the long-term private capital market. We argue that the dramatic increase in public borrowing at the end of the eighteenth century to finance warfare crowded out ecclesiastical institutions and shut down large part of the private credit market for long-term annuities for the decades to come. We also show that the withdrawal of ecclesiastical institutions in the 1790s came along with the rise of private obligations.