Borrowing Culture and Debt Relief : Evidence from a Policy Experiment

We investigate the effects of a large government-initiated debt relief program on ex-ante and ex post credit market efficiency. We use loan accounts data for a large sample of borrowers before and after a nation-wide debt relief program in India. Employing robust regression discontinuity design, we find that unconditional debt waiver leads to significant credit rationing in intensive as well as extensive margins. Further, following the program we do not find any improvement in delinquency rates among the waiver beneficiaries. In order to disentangle demand and supply effects of the program, we use unique loan officer level data and exploit mandatory loan officer rotation policy