Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/241122 
Year of Publication: 
2020
Series/Report no.: 
Staff Report No. 929
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
Analyzing unique data on loan applications by individuals who are majority owners of small firms, we detail how a bank's credit decisions affect their future income. We use the bank's cutoff rule, which is based on the applicants' credit scores, as the discontinuous locus providing exogenous variation in the decision to grant loans. We show 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.
Subjects: 
credit constraints
income
business loans
economic mobility
income inequality
regression discontinuity design
JEL: 
D31
E24
G21
O15
Document Type: 
Working Paper

Files in This Item:
File
Size
1.51 MB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.