This article investigates the politics of sovereign borrowing in Europe over the very long run. I consider three alternative hypotheses regarding the sources of borrower credibility. According to the first, European states with constitutional checks on executive authority found it easier to obtain credit at low interest rates than did states that lacked such constraints. My second hypothesis focuses on state type (city-state versus territorial state) and the way in which this may have influenced the balance of political power between owners of land and owners of capital in a society. This hypothesis suggests that after controlling for other factors, one should observe that city-states in Europe found it easier to borrow than did larger territorial states, and that these city-states paid lower interest rates on their debt. Finally, my third hypothesis suggests that borrower credibility depended on the simultaneous presence of both constitutional checks and balances and a city-state. When one considers a broad sample of cases over a long time span there is strong support for the proposition involving city-states and merchant power, but less support for the argument that constitutional checks influenced credibility regardless of state type (city-state or territorial state). There is, however, some empirical evidence of an interaction effect whereby constitutional constraints on rulers made city-states particularly credible as borrowers. My results are robust to a number of controls for alternative determinants, for sample selection bias, and for the endogeneity of city-state development.I would like to thank Robert Fannion, Jeff Frieden, Peter Gourevitch, Lisa Martin, Adam Przeworski, Ronald Rogowski, Jean-Laurent Rosenthal, Ken Scheve, Mike Tomz, Nikki Velasco, two anonymous referees, and seminar participants at Stanford and UCLA for comments on a previous draft. This research was supported by the Economic and Social Research Council (UK).
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