EconPapers    
Economics at your fingertips  
 

Consumer debt non-payment and the borrowing constraint: Implications for consumer behavior

Alexandros Bechlioulis and Sophocles Brissimis

Journal of Banking & Finance, 2019, vol. 101, issue C, 161-172

Abstract: This paper examines whether the consumption behavior of a borrowing-constrained household is affected by debt non-payment. From the household's intertemporal maximization problem, we derive a two-equation model consisting of augmented forms of the standard consumption Euler equation and the static labor supply equation. We estimate these equations by using nonlinear GMM and obtain estimates inter alia for the discount factor and the debt-payment-to-income ratio. The former is found to be much lower than the values often used in model calibrations in the literature, showing a high degree of impatience of households. The latter is close to the values reported in the consumer credit literature. Our results are found to be robust to a number of specification tests under different types of household preferences. These results are also subjected to a comparative analysis with the results derived from the consumption Euler equation under full debt repayment and no borrowing constraint.

Keywords: Non-payment of unsecured consumer debt; Consumption Euler equation; Debt-payment-to- income ratio; Nonlinear GMM estimation; Preference parameters (search for similar items in EconPapers)
JEL-codes: C51 C61 D11 D12 E44 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426619300366
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:101:y:2019:i:c:p:161-172

DOI: 10.1016/j.jbankfin.2019.02.009

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).

 
Page updated 2024-12-28
Handle: RePEc:eee:jbfina:v:101:y:2019:i:c:p:161-172