Discussion Paper Details

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Title: Credit and Income

Author(s): Manthos Delis, Fulvia Fringuellotti and Steven Ongena

Publication Date: January 2019

Keyword(s): Business loans, credit constraints, Income, Income inequality and regression discontinuity design

Programme Area(s): Financial Economics

Abstract: Using a unique data set of business loan applications to a single bank from individuals who are majority owners of small firms, we study how bank credit origination or denial affects individuals' income. The bank cutoff rule based on the applicants' credit score creates a sharp discontinuity in the decision to originate loans or not. We show that loan origination increases recipients' income five years onward by more than 10% compared to denied applicants. The effect is more pronounced in rural and low-income areas. Our results suggest an important role for banks` credit decisions on the distribution of income.

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Bibliographic Reference

Delis, M, Fringuellotti, F and Ongena, S. 2019. 'Credit and Income'. London, Centre for Economic Policy Research.