ABSTRACT
Domestic borrowing occurs when a hard-up government borrows cash from the citizens in order to finance its expenditures. Since, during the medieval and early modern periods, rulers often either failed or simply refused to honour their debts due to constant warfare, borrowing the next round of cash from the citizens became increasingly difficult. Cheated citizens demanded to be provided with collateral. Desperate for a new round of cash, the rulers often provided this collateral, which was in the form of tax-yielding assets. In practice this took the following form: in return for advancing to the state a lump-sum cash amount, the state provided the citizen with a tax-yielding asset as collateral. It was understood that if the state failed to pay back the borrowed amount, the lender would be authorized to collect the taxes from this state-owned asset.
