The Heterogeneous Effects of Household Debt Relief

Manuel Adelino, Miguel Ferreira and Miguel Oliveira

No 19036, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Large-scale debt forbearance is an important policy tool during periods of economic distress, but effectively targeting such a policy is hindered by information asymmetries. Using transaction-level data from a leading Portuguese bank, we study a widely accessible forbearance program during the COVID-19 pandemic. We find that financially fragile households are more likely to enter forbearance regardless of their income shock. Suspending mortgage payments positively and persistently affects consumption and savings, though effects vary across households. Specifically, low-wealth and low-income households have a greater propensity to consume out of postponed payments, while high-wealth and high-income households have a greater propensity to save. Additionally, households eligible for forbearance avoid a consumption decline, whereas ineligible households who nonetheless access forbearance increase their consumption. Our findings highlight the importance of incorporating observable household characteristics in designing effective debt relief policies.

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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