Banking on Jobs : Welfare and Credit

This paper explores how a job guarantee welfare program interacts with credit markets. We analyze the impact of a country-wide job guarantee program, launched in India in 2006. Exploiting the staggered implementation of the program we estimate the treatment effect of the program on household and commercial borrowing. We find that the program led to an increase of up to 23 per cent in credit outstanding in districts which received the treatment first. Personal borrowing increased by up to 27 per cent and commercial borrowing by around 18 to 20 per cent. We do not find conclusive evidence of any effect on later treated districts. We rationalize our findings as relaxation of credit supply constraints because the program reduced information asymmetries between banks and rural households. Our findings shed light on the complementary relation between credit markets and welfare states