Pulak Ghosh
IIM Bangalore
Nishant Vats
Booth School of Business, University of Chicago
Working Paper
JEL Codes:
JEL code(s) not specified.
● Safety Nets, Credit, and Investment: Evidence from a Guaranteed Income Program
download paper

Do safety nets affect investment? If so, how? Combining a natural experiment that gaveguaranteed income to landowning farmers in India with transaction-level bank account dataand loan-level credit bureau data, we evaluate the impact of unconditional and perpetualguaranteed income on small farmer entrepreneurs. We find that guaranteed income leads toan increase in income from farming. A promise of guaranteed income each year generatesan additional .7 of income from farming. We then study the mechanisms behind this effect.We find that instead of reducing ambition and initiative, guaranteed income allows recipientsto work differently. Specifically, guaranteed income provides protection against downside risk,which increases demand for credit and allows farmers to invest in a more capital-intensivemode of production. We estimate that a guaranteed income each year increases creditdemand by .7. Our results show that uninsured risk inherent in an entrepreneurial venture may be a binding demand-side constraint inhibiting growth. The availability of basicincome support increases entrepreneurs financial resilience and significantly improves theirproduction activity.

  • No programs attached.

Use of CMIE Product implies acceptance of the usage agreement & privacy policy   ♦   FAQs   ♦  Diagnosis