Staff Reports
Credit, Income, and Inequality
Number 929
June 2020 Revised March 2022

JEL classification: D31, E24, G21, O15

Authors: Manthos Delis, Fulvia Fringuellotti, and Steven Ongena

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.

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AUTHOR DISCLOSURE STATEMENT(S)
Manthos Delix
Manthos Delis declares that she has no relevant or material financial interests that relate to the research described in this paper.

Fulvia Fringuellotti
Fulvia Fringuellotti declares that she has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Steven Ongena
I declare that I have no relevant or material financial interests that relate to the research described in the paper Delis, Manthos, Fulvia Fringuellotti and Steven Ongena, 2020, Credit, income and inequality. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
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