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Credit and Income


Delis, Manthos; Fringuellotti, Fulvia; Ongena, Steven (2019). Credit and Income. CEPR 13468, University of Zurich.

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.

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.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:1 January 2019
Deposited On:29 Oct 2019 14:07
Last Modified:29 Oct 2019 14:07
Series Name:CEPR
OA Status:Green
Related URLs:https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13468 (Publisher)
Other Identification Number:merlin-id:16760

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