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Credit and Entrepreneurs’ Income
Small business entrepreneurs facing credit constraints may experience significantly different future income trajectories compared to their unconstrained counterparts. We quantify this difference using uniquely detailed loan application data and a regression discontinuity design based on a bank’s credit score cutoff rule employed in the loan approval process. Our findings indicate that loan acceptance increases recipients’ real income by eleven percent five years later compared to rejected applicants. This effect persists across a wide range of robustness tests and is primarily driven by ...