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The Financial Power of the Powerless: Socio†economic Status and Interest Rates under Partial Rule of Law

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  • Timur Kuran
  • Jared Rubin

Abstract

In advanced economies interest rates vary inversely with the risk of default, which itself is negatively related to the borrower's socio†economic status. The former relationship depends on the impartiality of the law. Where the law is markedly biased in favour of certain groups, these groups will pay a surcharge for capital. Legal power, as measured by privileges before the law, thus undermines financial power, the capacity to borrow cheaply. Developing this argument, this article also tests it through judicial records from Ottoman Istanbul, 1602–1799. Three privileged Ottoman groups–men, Muslims and titled elites–all paid relatively high interest rates conditional on various loan characteristics.

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  • Timur Kuran & Jared Rubin, 2018. "The Financial Power of the Powerless: Socio†economic Status and Interest Rates under Partial Rule of Law," Economic Journal, Royal Economic Society, vol. 128(609), pages 758-796, March.
    • Handle: RePEc:wly:econjl:v:128:y:2018:i:609:p:758-796
    DOI: 10.1111/ecoj.12389
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    Cited by:

    1. Sascha O. Becker & Jared Rubin & Ludger Woessmann, 2023. "Religion and Growth," Monash Economics Working Papers 2023-15, Monash University, Department of Economics.
    2. Becker, Sascha O. & Rubin, Jared & Woessmann, Ludger, 2020. "Religion in Economic History : A Survey," The Warwick Economics Research Paper Series (TWERPS) 1273, University of Warwick, Department of Economics.
    3. Anthony Gill, 2021. "The comparative endurance and efficiency of religion: a public choice perspective," Public Choice, Springer, vol. 189(3), pages 313-334, December.
    4. Benjamin Broman & Georg Vanberg, 2022. "Feuding, arbitration, and the emergence of an independent judiciary," Constitutional Political Economy, Springer, vol. 33(2), pages 162-199, June.
    5. Mishra, Aswini Kumar & Bhardwaj, Vedant, 2022. "Financial access and household’s borrowing: Policy perspectives of an emerging economy," Journal of Policy Modeling, Elsevier, vol. 44(5), pages 981-999.
    6. Dove, John A., 2018. "It's easier to contract than to pay: Judicial independence and US municipal default in the 19th century," Journal of Comparative Economics, Elsevier, vol. 46(4), pages 1062-1081.

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