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Credit, Income and Inequality

Manthos Delis (), Fulvia Fringuellotti and Steven Ongena ()

No 929, Staff Reports from Federal Reserve Bank of New York

Abstract: Analyzing unique data on loan applications by individuals who are majority owners of small firms, we detail how a bank’s credit decisions affect their future income. We use the bank’s cutoff rule, which is based on the applicants’ credit scores, as the discontinuous locus providing exogenous variation in the decision to grant loans. We show that application acceptance increases recipients’ income five years later by more than 10 percent compared to denied applicants. This effect is mostly driven by the use of borrowed funds to undertake investments, and is stronger when individuals are more credit-constrained.

Keywords: regression discontinuity design; income; credit constraints; business loans; income inequality; economic mobility (search for similar items in EconPapers)
JEL-codes: D31 E24 G21 O15 (search for similar items in EconPapers)
Pages: 60
Date: 2020-06-01
New Economics Papers: this item is included in nep-fdg and nep-mac
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