Income Guarantees and Borrowing in Risky Environments: Evidence from India's Rural Employment Guarantee Scheme

Clive Bell and Abhiroop Mukhopadhyay

Economica, 2020, vol. 87, issue 347, 763-812

Abstract: This paper investigates the effects of an income guarantee on borrowing in a risky setting with marked seasonality. A three‐season, infinite‐horizon model is developed, in which the aims of smoothing consumption and maintaining creditworthiness are somewhat opposed and the seasonal timing of transfers matters. If borrowing does not affect production, then larger transfers concentrated in the lean season may well lead to a contraction of the total amount borrowed over the whole annual cycle. If borrowing also finances working capital, then larger transfers make riskier positions attractive, and investment in working capital and total borrowing may both increase. These insights are tested in the context of India's National Rural Employment Guarantee Scheme, as implemented in upland Odisha. The potential endogeneity of participation is addressed by using the female reservation for local elections as an instrument. Each day's work reduces the estimated level of borrowing in the lean season by about the regulated wage. In contrast, the estimated effect on borrowing in the cultivation season by households owning at least the median holding is to increase it by about one‐and‐a‐half times the wage; but there is no significant effect for households owning less.

Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/ecca.12325

Related works:
Working Paper: Income Guarantees and Borrowing in Risky Environments: Evidence from India's Rural Employment Guarantee Scheme (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:econom:v:87:y:2020:i:347:p:763-812

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0013-0427

Access Statistics for this article

Economica is currently edited by Frank Cowell, Tore Ellingsen and Alan Manning

More articles in Economica from London School of Economics and Political Science Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().