Cash-on-hand and demand for credit

Can Cui ()

Empirical Economics, 2017, vol. 52, issue 3, No 6, 1007-1039

Abstract: Abstract Subprime consumers often use small-dollar credit products, such as payday loans, to meet short-term financial needs over pay cycles. However, relatively little is known about the income sensitivity of demand for credit in this market. This paper provides a causal estimate of the effect of tax rebates on the demand for small-dollar credit, using a unique proprietary loan-level dataset. Identification relies on variation in state Earned Income Tax Credit (EITC) generosity for areas within the same commuting zones that span state borders. The results show that a $100 increase in EITC benefits leads to an 8.3% reduction in the number of loan applications and a 6.6% reduction in the number of borrowers. This could translate into sizable reductions in loan volume and savings in financial charges. More broadly, the results suggest that public programs with income benefits could help recipients with consumption smoothing in the presence of credit market frictions.

Keywords: Tax refunds; Payday loans; Liquidity constrain (search for similar items in EconPapers)
JEL-codes: G10 H20 I38 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s00181-016-1213-2 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:empeco:v:52:y:2017:i:3:d:10.1007_s00181-016-1213-2

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-016-1213-2

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().