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Borrowers' Distress and Debt Relief: Evidence from a Natural Experiment

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  • Saptarshi Mukherjee
  • Krishnamurthy Subramanian
  • Prasanna Tantri

Abstract

Using unique borrower-level data, we study the causal effect of debt relief on the loan performance of distressed and nondistressed borrowers. We employ a regression discontinuity design that exploits exogenous cutoff dates underlying the 2008 Indian debt waiver program to separate defaulters on loans into beneficiaries and nonbeneficiaries of waivers. By identifying distress before the waiver program using exogenous borrower-level shocks, we examine performance on loans originated after the waiver program. Loan performance of nondistressed beneficiaries worsens, while that of distressed borrowers improves. While existing studies aggregate the effects of debt relief across distressed and nondistressed borrowers, we highlight crucial differences between them.

Suggested Citation

  • Saptarshi Mukherjee & Krishnamurthy Subramanian & Prasanna Tantri, 2018. "Borrowers' Distress and Debt Relief: Evidence from a Natural Experiment," Journal of Law and Economics, University of Chicago Press, vol. 61(4), pages 607-635.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/701902
    DOI: 10.1086/701902
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    Cited by:

    1. Sudha Narayanan & Nirupam Mehrotra, 2019. "Loan Waivers and Bank Credit: Reflections on the Evidence and the Way Forward," Vikalpa: The Journal for Decision Makers, , vol. 44(4), pages 198-210, December.
    2. Mahambare, Vidya & Dhanaraj, Sowmya & Mittal, Pragati, 2022. "The political budget cycles in the presence of a fiscal rule: The case of farm debt waivers in India," Journal of Policy Modeling, Elsevier, vol. 44(3), pages 701-721.
    3. Tantri, Prasanna, 2021. "Identifying ever-greening: Evidence using loan-level data," Journal of Banking & Finance, Elsevier, vol. 122(C).
    4. Norman V. Loayza & Steven Pennings, 2020. "Macroeconomic Policy in the Time of COVID-19," World Bank Publications - Reports 33540, The World Bank Group.
    5. Aidt, Toke & Asatryan, Zareh & Badalyan, Lusine, 2022. "Political consequences of consumer debt relief," ZEW Discussion Papers 22-049, ZEW - Leibniz Centre for European Economic Research.
    6. Mannil, Nithin & Nishesh, Naman & Tantri, Prasanna, 2024. "When emergency medicine becomes a staple diet: Evidence from Indian banking crisis," Journal of Banking & Finance, Elsevier, vol. 161(C).
    7. D. Burton, 2021. "Consumer Debt Prevention and Discharge in the Arabian Gulf," Journal of Consumer Policy, Springer, vol. 44(1), pages 21-42, March.
    8. Bhanot, Disha & Farias, Vivek & Sinha, Deeksha, 2025. "Interest subvention for crop loans in India: Win-win or win-lose ?," Journal of Policy Modeling, Elsevier, vol. 47(2), pages 371-393.
    9. Albuquerque Sant'Anna, André & Costa, Lucas, 2021. "Environmental regulation and bail outs under weak state capacity: Deforestation in the Brazilian Amazon11The authors gratefully acknowledge Antonio Ambrózio, Juliano Assunção, Arthur Bragança, Filipe Campante, André Chagas, Francisco Costa, Bard Hars," Ecological Economics, Elsevier, vol. 186(C).
    10. Sumit Agarwal & Aditya Murlidharan & Naman Nishesh & Prasanna Tantri, 2026. "Familiarity Breeds Contagion∗," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 58(1), pages 5-38, February.
    11. Worarit Vannavanit & Sommarat Chantarat & Lathaporn Ratanavararak & Kazushi Takahashi, 2026. "Flexible Debt Relief and Credit Behavior: Evidence from Loan-Level Data," PIER Discussion Papers 253, Puey Ungphakorn Institute for Economic Research.
    12. Prasanna Tantri, 2025. "How Does a Health Insurance Program Covering 500 Million Poor Impact Credit Market Outcomes?," Management Science, INFORMS, vol. 71(6), pages 4533-4551, June.
    13. Aidt, Toke & Asatryan, Zareh & Badalyan, Lusine, 2024. "Political consequences of (consumer) debt relief," ZEW Discussion Papers 24-030, ZEW - Leibniz Centre for European Economic Research.
    14. Nina Ashley O. Dela Cruz & Alyssa Cyrielle B. Villanueva & Lovely Tolin & Sabrina Disse & Robert Lensink & Howard White, 2025. "Effects of Interventions to Improve Access to Financial Services for Micro, Small, and Medium‐Sized Enterprises in Low‐ and Middle‐Income Countries: An Evidence and Gap Map," Campbell Systematic Reviews, John Wiley & Sons, vol. 21(3), September.
    15. Agarwal, Sumit & Tantri, Prasanna & Vishen, Nitin, 2025. "Does social capital positively influence loan performance even during a crisis?," Journal of Development Economics, Elsevier, vol. 172(C).
    16. Sowmya Dhanaraj & Vidya Mahambare & Pragati, 2021. "Are India’s farm debt waivers a political tool that impacts government finances?," Working Papers 2021-211, Madras School of Economics,Chennai,India.
    17. Molnár, György & Berlinger, Edina & Dobránszky-Bartus, Katalin, 2021. "Lejárt tartozások fogságában [Overdue debt as a poverty trap]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 709-735.
    18. Edina Berlinger & Katalin Dobránszky-Bartus & György Molnár, 2021. "Overdue Debts and Financial Exclusion," Risks, MDPI, vol. 9(9), pages 1-20, August.
    19. Lathaporn Ratanavararak & Sommarat Chantarat, 2022. "Do Agricultural Debt Moratoriums Help or Hurt? The Heterogenous Impacts on Rural Households in Thailand," PIER Discussion Papers 195, Puey Ungphakorn Institute for Economic Research.
    20. Loayza,Norman V. & Pennings,Steven Michael, 2020. "Macroeconomic Policy in the Time of COVID-19 : A Primer for Developing Countries," Research and Policy Briefs 147291, The World Bank.
    21. André Albuquerque Sant’Anna & Lucas Costa, 2019. "Bailing out environmental liabilities: moral hazard and deforestation in the Brazilian Amazon," Documentos de Trabajo 17435, The Latin American and Caribbean Economic Association (LACEA).

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