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The Distributive impact of reforms in credit enforcement: Evidence from Indian debt recovery tribunals

Listed author(s):
  • Ulf von Lilienfeld-Toal

    (Department of Finance, Stockholm School of Economics)

  • Dilip Mookherjee

    (Department of Economics, Boston University)

  • Sujata Visaria

    (Department of Economics, Boston University)

It is generally presumed that strengthening the enforcement of lender rights expands the set of incentive compatible loan contracts, resulting in increased access to credit for all types of borrowers. This is based on an implicit assumption of inlnitely elastic supply of loans. With inelastic supply, strengthening enforcement can result in greater exclusion of poor borrowers from credit markets and a reallocation of credit from poor to wealthy borrowers. Using a dataset of capital project loans given by a large Indian bank to lrms of varying asset sizes, we lnd evidence of such adverse distributional impacts of a reform to strengthen lender rights implemented across Indian states in the 1990s.

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File URL: http://www.isid.ac.in/~pu/dispapers/dp09-03.pdf
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Paper provided by Indian Statistical Institute, New Delhi, India in its series Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers with number 09-03.

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Length: 36 pages
Date of creation: Jan 2009
Handle: RePEc:ind:isipdp:09-03
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  1. Philippe Aghion & Robin Burgess & Stephen Redding & Fabrizio Zilibotti, 2006. "The unequal effects of liberalization: evidence from dismantling the License Raj in India," LSE Research Online Documents on Economics 3773, London School of Economics and Political Science, LSE Library.
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  3. Patrick Bolton & Howard Rosenthal, 2002. "Political Intervention in Debt Contracts," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1103-1134, October.
  4. RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, "undated". "Legal Determinants of External Finance,"," CRSP working papers 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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  6. Reint Gropp & John Karl Scholz & Michelle J. White, 1997. "Personal Bankruptcy and Credit Supply and Demand," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 217-251.
  7. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  8. Igor Livshits & James MacGee & Michele Tertilt, 2003. "Consumer bankruptcy: a fresh start," Working Papers 617, Federal Reserve Bank of Minneapolis.
  9. Sujata Visaria, 2009. "Legal Reform and Loan Repayment: The Microeconomic Impact of Debt Recovery Tribunals in India," American Economic Journal: Applied Economics, American Economic Association, vol. 1(3), pages 59-81, July.
  10. Timothy Besley & Robin Burgess, 2002. "Can Labour Regulation Hinder Economic Performance? Evidence from India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers 33, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  11. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2007. "A quantitative theory of unsecured consumer credit with risk of default," Working Papers 07-16, Federal Reserve Bank of Philadelphia.
  12. Bovenberg, A.L. & Gordon, R.H., 1996. "Why is capital so immobile internationally? Possible explanation and implications for capital income taxation," Other publications TiSEM 6a131c21-fd9a-4d83-8d9a-7, Tilburg University, School of Economics and Management.
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