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Cities, Constitutions, and Sovereign - Borrowing in Europe 1274-1785

by David Stasavage. Reading for week of January 31, 2006.

This paper investigates the politics of sovereign borrowing in Europe over the very long run.  I consider three alternative hypotheses.  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.  The second hypothesis focuses on the difference between city-states and larger territorial states in Europe and the way in which the political balance between owners of land and owners of capital varied between these two state types.  It suggests that city-states found it easier to gain access to credit at low interest rates than did larger territorial states, which is consistent with the common observation that merchants had greater political influence within city-states.  Finally, a third hypothesis suggests that borrower credibility depended on the simultaneous presence of both constitutional checks and balances and a city-state form of organization.  When we consider a broad sample of cases over a long time span there is very 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, strong empirical evidence of an interactive effect whereby constitutional constraints on rulers made city-states even more credible as borrowers.  My results are robust to a number of controls for alternative determinants, for sample selection bias, and for possible "Self selection" involving city-state development.

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