Working Paper: NBER ID: w29386
Authors: Gabriel Garber; Atif R. Mian; Jacopo Ponticelli; Amir Sufi
Abstract: Brazil initiated a major credit expansion program through government banks in 2011. The program primarily targeted public sector workers with offers of payroll-backed loans. Using individual-level administrative data we find that the program led to a 15 percentage point rise in debt to initial income for public sector workers. We develop a new method for estimating workers' expected income growth, and show that ''consumption smoothing'' cannot explain the rise in consumer borrowing. Instead, the evidence supports ''consumption binging'': less financially sophisticated workers borrowed more at high real interest rates, and experienced both higher consumption volatility and lower average consumption.
Keywords: consumer credit; Brazil; government policy; household debt
JEL Codes: D12; D14; E21; E32; G21; G28; G53; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government-led credit expansion program in Brazil (H81) | increase in debt relative to initial income for public sector workers (H69) |
| increase in debt relative to initial income for public sector workers (H69) | higher consumption volatility and lower average consumption (E21) |
| lower financial sophistication of public sector workers (J45) | larger increase in debt-to-income ratio (G51) |
| less sophisticated workers (J46) | significant drop in consumption during the recession of 2014-2016 (E20) |
| government-led credit expansion (H81) | increased financial vulnerability among less sophisticated borrowers (G51) |