Working Paper: CEPR ID: DP13468
Authors: Manthos Delis; Fulvia Fringuellotti; Steven Ongena
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
JEL Codes: G21; D31; E24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Loan origination (G51) | Income (D31) |
| Loan origination (G51) | Income (1 year after) (D31) |
| Loan origination (G51) | Income (3 years after) (J39) |
| Loan origination (G51) | Gini index (5 years after) (D31) |
| Loan origination (G51) | Theil index (5 years after) (F29) |
| Credit constraints (E51) | Income (D31) |