Staff Reports
Credit, Income and Inequality
Number 929
June 2020

JEL classification: D31, E24, G21, O15

Authors: Manthos Delis, Fulvia Fringuellotti, and Steven Ongena

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.

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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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