Stimulus through Insurance: the Marginal Propensity to Repay Debt

Gizem Kosar, Davide Melcangi, Laura Pilossoph and David Wiczer

No 34399, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using detailed microdata, we document that households often use “stimulus” checks to pay down debt, especially those with low net wealth-to-income ratios. To rationalize these patterns, we introduce an empirically plausible borrowing price schedule into an otherwise standard incomplete markets model. Because interest rates rise with debt, borrowers have increasingly larger incentives to use an additional dollar to reduce debt service payments rather than consume. Using our calibrated model, we then study whether and how this marginal propensity to repay debt (MPRD) alters the aggregate implications of fiscal transfers. We uncover a trade-off between stimulus and insurance, as high–debt individuals gain considerably from transfers, but consume relatively little immediately. This mechanism lowers the immediate stimulus effect of fiscal transfers, but sustains aggregate consumption for longer.

JEL-codes: E21 E62 (search for similar items in EconPapers)
Date: 2025-10
New Economics Papers: this item is included in nep-dge and nep-mac
Note: EFG
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w34399.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
Working Paper: Stimulus through Insurance: The Marginal Propensity to Repay Debt (2024)
Working Paper: Stimulus through Insurance: The Marginal Propensity to Repay Debt (2023)
Working Paper: Stimulus through Insurance: The Marginal Propensity to Repay Debt (2023)
Working Paper: Stimulus through Insurance: The Marginal Propensity to Repay Debt (2023)
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:nbr:nberwo:34399

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w34399
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().