Credit and Income

49 Pages Posted: 23 Jan 2019

See all articles by Manthos D. Delis

Manthos D. Delis

Montpellier Business School

Fulvia Fringuellotti

Federal Reserve Banks - Federal Reserve Bank of New York

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Date Written: January 2019

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: Business loans, credit constraints, Income, Income inequality, regression discontinuity design

JEL Classification: D31, E24, G21

Suggested Citation

Delis, Manthos D. and Fringuellotti, Fulvia and Ongena, Steven R. G., Credit and Income (January 2019). CEPR Discussion Paper No. DP13468, Available at SSRN: https://ssrn.com/abstract=3319789

Manthos D. Delis (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Fulvia Fringuellotti

Federal Reserve Banks - Federal Reserve Bank of New York

33 Liberty Street
New York, NY 10045
United States

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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