The Heterogeneous Effects of Household Debt Relief

Manuel Adelino, Miguel Ferreira and Miguel Oliveira

No 19036, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Large-scale debt forbearance is a key policy tool in times of economic distress, but it is challenging to design a targeted program due to information asymmetries between lenders and borrowers. Using transaction-level data from a leading Portuguese bank, we study which households access a widely advertised and easily accessible forbearance program during the COVID-19 pandemic and how it affects household consumption and savings. We show that the average household that enters forbearance is fragile, and suspending mortgage payments has positive and persistent effects on consumption and savings. The effects, however, are very heterogeneous across households. Households eligible for forbearance avoid a drop in consumption, while ineligible households, who nevertheless access forbearance, increase consumption. In addition, the consumption response is stronger among low-wealth and low-income households, while the savings response is stronger among high-wealth and high-income households.

Keywords: Household finance; Mortgages; Consumption; Savings; Income; Default (search for similar items in EconPapers)
JEL-codes: E21 E62 G28 G50 H31 (search for similar items in EconPapers)
Date: 2024-04
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