Credit and Income

Steven Ongena, Manthos Delis and Fulvia Fringuellotti

No 13468, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Credit constraints; Income; Business loans; Income inequality; Regression discontinuity design (search for similar items in EconPapers)
JEL-codes: D31 E24 G21 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-ban
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