Debt sustainability in Spain, 1850-1913

Author: Alba Roldan

Full paper available here

and more about Dr Roldan’s research here



Public debt – Sustainability – Spain


Public debt in Spain accounts for 117.7% of GDP (data from the first quarter of 2022). Spain has one of the world’s worst records as a serial defaulter (Comín, 2016). Proof of this are the five centuries of irresponsibility: from Phillip II (1557) to the autonomy of the Bank of Spain. Spain has constantly used heterodox tools to solve debt problems: repudiation, restructuring, monetisation, inflation or financial repression. It is for this reason that debt sustainability has always been an important issue for Spain. The Spanish case is a popular topic among global experts due to the country’s long experience in debt crises.

Figure 1. Public debt evolution and debt restructurings, 1850-1913

Source: Comín and Díaz (2005, p. 961; 2012) and Prados de la Escosura (2003)


Spain had constant deficits and huge amounts of debt during the last decades of nineteenth century, making it difficult to keep the exchange rate stable and maintain fiscal discipline during a period of fiscal discipline and fixed exchange rates in most European economies (the gold standard era). What happened to the public debt? Was it sustainable?

First, the paper analyses if there are breakpoints in public debt development according to fiscal reaction function (Bohn, 2007). Bai-Perron test shows two breakpoints: 1876 and 1902. According to historiography, first breakpoint (1876) is related with two debt restructurings (the first one carried out by Salaverría and the second by Camacho). The second breakpoint is linked to a third debt restructuring managed by Fernández Villaverde and considered more than a debt restructuring because he made important efforts to improve both monetary and fiscal problems.

Second, the paper studies debt sustainability considering the breakpoints found in the first point. The results underline that public debt was not sustainable between 1850 and 1902. From 1902, Spanish public debt became sustainable. This can be linked with a change in economic policies introduced by Fernández Villaverde who considered both a decrease in public spending and an increase in revenues were needed.

Third, the paper presents different estimations that corroborate the idea that debt became sustainable from 1902. Moreover, these analysis show that even when it was not enough during the seventies and early eighties there were efforts to improve public debt sustainability.

Finally, narrative evidence potentiate the results found. Fernández Villaverde decreased short term debt (more expensive) and increase long term debt (cheaper). He also managed to reduce the burden of the debt and increase direct taxes. The yields on government bonds decreased and converged with the UK yields on government bonds.

Figure 2.  Debt structure between 1874 and 1913.

Source: Comín (2016/2017b)


Figure 3. Burden of public debt between 1876 and 1913

Source: Comin (2016/2017b)