Social groups and credit shocks: evidence of inequalities in consumption smoothing

Vibhor Saxena, Ishaan Bindal, Philippe LeMay-Boucher

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    Abstract

    A strand of research holds the view that restricting access to credit to regulate over-borrowing can worsen consumers’ financial condition. Another strand of research holds the view that access to credit in the developing countries with subprime credit markets is determined by social groupings and ethnic affiliations. By merging these two strands of research, we investigate the impact of Andhra Pradesh microfinance act (2010) on the consumption expenditure of marginalised social groups and the upper caste Hindu groups in India. We construct an aggregated district level panel data for eight quarters and estimate the impact of unanticipated policy change. The results of our analysis show that the sudden restriction of access to credit has relatively larger impact on the consumption levels of the marginalised social groups: lower castes, tribes, and Muslims. The findings also confirm the failure of contingency policy enacted for smoothing consumption.
    Original languageEnglish
    Pages (from-to)311-326
    Number of pages16
    JournalEconomic Analysis and Policy
    Volume68
    Early online date16 Oct 2020
    DOIs
    Publication statusPublished - Dec 2020

    Keywords

    • Financial deleveraging
    • Social insurance
    • Consumption smoothing
    • Microfinance
    • Andhra Pradesh

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