Consumption smoothing or consumption binging? The effects of government-led consumer credit expansion in Brazil

Gabriel Garber, Atif Mian, Jacopo Ponticelli and Amir Sufi

Journal of Financial Economics, 2024, vol. 156, issue C

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: Credit booms; Payroll loans; Credit card expenditure (search for similar items in EconPapers)
JEL-codes: D12 D14 E21 E32 G21 G28 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:156:y:2024:i:c:s0304405x24000576

DOI: 10.1016/j.jfineco.2024.103834

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