Financial Repression in a Natural Experiment: Loan Allocation and the Change in the Usury Laws in 1714

Peter Temin and Hans-Joachim Voth

No 209, Working Papers from Barcelona School of Economics

Abstract: If financial deepening aids economic growth, then financial repression should be harmful. We use a natural experiment in the change in the English usury laws in 1714 to analyze the effects of interest rate restrictions. We use a sample of individual loan transactions to demonstrate how the reduction of the legal maximum rate of interest affected the supply and demand for credit. Average loan size and minimum loan size increased strongly, and access to credit worsened for those with little "social capital." While we have no direct evidence that loans were misallocated, the discontinuity in loan receipts makes this highly likely. We conclude that financial repression can undermine the positive effects of financial deepening.

Keywords: credit rationing; Economic development; banking; financial repression; usury laws; natural experiments; lending decisions (search for similar items in EconPapers)
JEL-codes: G21 N23 O16 (search for similar items in EconPapers)
Date: 2015-09
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Citations: View citations in EconPapers (2)

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Working Paper: Financial Repression in a Natural Experiment: Loan Allocation and the Change in the Usury Laws in 1714 (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:209

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