Working Paper: CEPR ID: DP3071
Authors: Rob Alessie; Stefan Hochguertel; Guglielmo Weber
Abstract: In this Paper we analyse unique data on credit applications received by the leading provider of consumer credit in Italy (Findomestic). The data set covers a five year period (1995-99) during which the consumer credit market rapidly expanded in Italy and a new law came into force that set a limit to interest rates charged to consumers (the usury law). We investigate ways in which the law may have affected the consumer credit market and show how the applicants? pool has changed over time in comparison to a representative sample of the Italian population. We compute behavioural changes by controlling for changes in the observable characteristics of the Findomestic clientele and argue that, under suitable identifying assumptions, these changes can be given a structural interpretation. If the usury shock is assumed to have affected credit supply but not credit demand, that is if the usury law had a differential impact on the supply of various types of credit but a uniform impact on demand , we can identify and estimate a demand equation. Our key finding is that demand is interest rate elastic, particularly in the North, where the consumer credit market is more competitive.
Keywords: choice-based sample; consumer credit; usury
JEL Codes: D12; E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Usury law (K35) | Differential impact on credit supply (E51) |
| Usury law (K35) | Uniform effect on credit demand (E51) |
| Usury law (K35) | Reshuffling of applications towards revolving credit (G51) |
| Usury law (K35) | Shift from instalment to revolving credit (G21) |
| Interest rate changes (E43) | Volume of credit demanded (E41) |
| Fall in median interest rates (E43) | Market adjustment towards favorable credit types (G21) |
| Changes in applicant pool (J79) | Behavioral shifts in response to usury law (K49) |