Sovereign Debt and State Financing

Abstract

The management of the national debt does not correspond to the rules for management of the personal debt of individuals, households, or business enterprises. This chapter argues that economic history is of vital importance in elucidating this difference. Economic historians explore past episodes of unusually large expansions of sovereign debt to uncover the economic consequences when taxes are raised or not, and when the money supply is increased or not. This chapter uncovers the economics of sovereign debt by surveying academic debates on a selection of such historical events, including the Mississippi and South Sea bubbles and the sovereign default of Spain.