Was Spanish debt sustainable? A debt sustainability analysis between 1850 and 1913.

This article examines the sustainability of Spanish public debt between 1850 and 1913 by estimating the fiscal reaction function proposed by Bohn, focusing on whether fiscal policies effectively counteracted rising debt levels. The analysis identifies two structural breaks—in 1876 and 1902—corresponding to debt restructurings by Salaverría and Camacho, and later by Raimundo Fernández Villaverde, respectively. Findings indicate that Spanish public debt was unsustainable from 1850 to 1901, despite some fiscal efforts after 1876, but became sustainable from 1902 onward due to Villaverde’s comprehensive reforms, which included debt restructuring, spending cuts, tax reforms, and the introduction of a tax on debt interest. These reforms led to budget surpluses, reduced debt burden, and improved market confidence, distinguishing Villaverde’s approach from earlier, less effective restructurings. The study contributes quantitative evidence supporting the historiographical view that sustained fiscal discipline and structural reforms were crucial for restoring Spain’s fiscal solvency in the early twentieth century.