Informal Loans, Liquidity Constraints and Local Credit Supply: Evidence from Italy
36 Pages Posted: 6 Apr 2017
Date Written: February 23, 2017
Using data from the Italian Survey on Household Income and Wealth from 1995 to 2014, we study the relation between informal credit (loans from relatives and friends) and a household's access to bank credit. While most of the literature has focused on the substitutability channel, we highlight that even households with full access to the formal credit market are more likely to be indebted to relatives or friends when compared to those not interested in formal loans. This complementarity is stronger for households who have problems paying back their loans, suggesting the presence of a caretaker effect on the part of relatives and friends towards distressed families. Finally, we estimate the overall impact of an expansion of local credit supply on the diffusion of informal loans, using an IV approach. The results suggest that the complementarity effect prevails, but the positive effect on informal loans is economically very small.
Keywords: informal credit, local credit markets, inter vivos transfers
JEL Classification: D14, E21
Suggested Citation: Suggested Citation