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Interest rate restrictions in a natural experiment: loan allocation and the change in the usury laws in 1714

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  • Joachim Voth

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  • Peter Temin

Abstract

This article studies the effects of interest rate restrictions on loan allocation. The British government tightened the usury laws in 1714, reducing the maximum permissible interest rate from 6% to 5%. A sample of individual loan transactions reveals that average loan size and minimum loan size increased strongly, while access to credit worsened for those with little social capital. Collateralised credits, which had accounted for a declining share of total lending, returned to their former role of prominence. Our results suggest that the usury laws distorted credit markets significantly; we find no evidence that they offered a form of Pareto-improving social insurance.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 858.

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Date of creation: May 2005
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Handle: RePEc:upf:upfgen:858

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Web page: http://www.econ.upf.edu/

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Keywords: Economic development; banking; financial repression; usury laws; credit rationing; natural experiments; lending decisions;

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Cited by:
  1. Matthias Doepke & Fabrizio Zilibotti, 2007. "Occupational Choice and the Spirit of Capitalism," SFB 649 Discussion Papers SFB649DP2007-049, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Howard Bodenhorn, 2005. "Usury Ceilings, Relationships and Bank Lending Behavior: Evidence from Nineteenth Century," NBER Working Papers 11734, National Bureau of Economic Research, Inc.
  3. Joachim Voth & Mauricio Drelichman, 2008. "Debt sustainability in historical perspective: The role of fiscal repression," Economics Working Papers 1184, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Robert Mayer, 2013. "When and Why Usury Should be Prohibited," Journal of Business Ethics, Springer, vol. 116(3), pages 513-527, September.

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