Association for Public Policy Analysis & Management

The poor are often chronically indebted and have low social capital. Besides harming well-being and health, low social capital may also reduce access to economic opportunities and financial resilience, making it harder for the poor to escape from poverty. This paper studies how an exogenous reduction in debt changes social capital in the poor. We exploit variation from a large-scale debt relief program organised by a charity in Singapore, which repaid up to Singapore $5,000 of debt (worth about 3 months' household income) for chronically indebted families. We measured changes in social capital of 196 beneficiaries before and after debt relief, using the Lubben Social Network Scale. Beneficiaries report a significant increase in the frequency of social contact with family and with friends after debt relief. However, there was no improvement in perceived support for discussing private matters or seeking practical help. The results suggest the burden of dealing with chronic debt impedes social engagement in the poor.