Public Finance and Economic Growth. The Case of Holland in the Seventeenth Century

The debate over the institutions that link economic growth to public finance
tends to disregard the need for savings to finance growing public debt. In
seventeenth-century Holland the structure, size, and issuing rates of the debt
were determined by investors’ preferences, wealth accumulation, and changing
private investment opportunities. The growth of savings enabled the creation of
a huge debt largely with short-term bills. Issuing rates dropped because savings
outstripped private investment alternatives. In Holland, and probably elsewhere
as well, credible commitment and efficient fiscal institutions were necessary, but
not sufficient to create liquid secondary markets and low costs of capital.