Does digital credit alleviate household income vulnerability?

Abstract

As a result of various internal and external risks and unstable expectations, the income vulnerability of households in various countries has come to the forefront, weakening the microfoundation of a stable macroeconomy. However, the booming development of digital credit may create favorable conditions for mitigating household income vulnerability and improving household economic resilience. Using data from the 2014–2020 China Family Panel Studies (CFPS), this paper explores the mechanism of the role of digital credit on household income vulnerability. Firstly, digital credit can help the household sector manage risks, effectively alleviate the credit constraints of the household sector, and mitigate household income vulnerability. Secondly, the development of digital credit mitigates household income vulnerability by promoting the breadth and depth of financial services. Thirdly, the heterogeneity analysis shows that the marginal utility of digital credit is higher for the income vulnerability of self-employed households, low-income disadvantaged households, and households in underdeveloped regions. Fourthly, the shock of the COVID-19 pandemic and the implementation of entrepreneurship assistance policies weakened digital credit's alleviation of household income vulnerability.