DP13468 Credit and Income
|Author(s):||Manthos Delis, Fulvia Fringuellotti, Steven Ongena|
|Publication Date:||January 2019|
|Keyword(s):||Business loans, credit constraints, Income, Income inequality, regression discontinuity design|
|JEL(s):||D31, E24, G21|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=13468|
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.