- | Thursday, July 6
- 12:15 PM
- Kaiserplatz 7-9, 4th floor, Room 4.006
The Dark Side of Social Capital? Battles and Mortgage Lending
I study how a shock in culture and trust in the past still affects mortgage lending today. More specifically, I investigate the long run effects of the American Civil War, a defining event for culture in American history, on current mortgage lending approval between 2005 and 2011. Using a spatial regression discontinuity design, exploiting the random occurrences of battles during the Civil War, I find that location matters for credit extension: Being located in a county in which a battle took place fosters the probability of loan approval. However, applicants from minority groups, such as African Americans, have a significant lower probability to obtain a mortgage loan in counties where a battlefield during the Civil War was located compared to similar applicants in adjacent non-battle counties. Conditional upon approval they also receive lower loan amounts. I show that a channel through which this battle effect persists is culture: Counties in which soldiers actively fought during the Civil War show higher levels of social capital today. Additionally, I find that remembrances of Civil War battles are important for the persistency of local social capital: Those battle counties that actively remember through re-enactment groups have even higher social capital today compared to those battle counties that do not. Moreover, applicants from minority groups have a significant lower probability to see their application currently being approved in these counties compared to minority applicants from battle counties that do not actively remember through such groups. Furthermore, conditional upon approval, they are also granted a lower loan amount, suggesting a possible ‘dark side’ of social capital.