Reputational Recovery under Political Instability

Costa, Leonor Freire; Miranda, Susana Münch

http://hdl.handle.net/10362/145503

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Autores

Costa, Leonor Freire

Miranda, Susana Münch

Resumo(s)

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.

Descrição

PTDC/HAR-HIS/28809/2017

Palavras-chave

Self-enforced constraints Absolutist regime Credible commitment Debt sustainability Interest rates Perpetuities Economics, Econometrics and Finance(all) SDG 16 - Peace, Justice and Strong Institutions