In advanced economies interest rates vary inversely with the borrower's socio-economic status, which itself depends inversely on default risk. These relationships depend on the impartiality of the law. Where the law is markedly biased in favour of certain groups, the latter 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 paper 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.
Kuran, T., & Rubin, J. (2016). The financial power of the powerless: Socio-economic status and interest rates under weak rule of law. Economic Journal. http://doi.org/10.1111/ecoj.12389
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