Credit, Income, and Inequality

78 Pages Posted: 29 Jun 2020 Last revised: 8 Mar 2022

See all articles by Manthos D. Delis

Manthos D. Delis

Audencia 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; NTNU Business School; Centre for Economic Policy Research (CEPR)

Date Written: March 16, 2021

Abstract

How does credit access for small business owners affect the growth and inequality of their future income? A bank’s cutoff rule, employed in the decision to grant loans and based on applicants’ credit scores, provides us with the exogenous variation needed to answer this question. Analyzing uniquely detailed loan application data, we find 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: credit constraints, income, business loans, economic mobility, income inequality, regression discontinuity design

JEL Classification: D31, E24, G21, O15

Suggested Citation

Delis, Manthos D. and Fringuellotti, Fulvia and Ongena, Steven R. G., Credit, Income, and Inequality (March 16, 2021). FRB of New York Staff Report No. 929, Rev. March 2022, Proceedings of Paris December 2020 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3631252 or http://dx.doi.org/10.2139/ssrn.3631252

Manthos D. Delis

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Fulvia Fringuellotti (Contact Author)

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

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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