The heterogeneous effects of household debt relief

Miguel A. Ferreira, Manuel Adelino and Miguel Oliveira

No 3034, Working Paper Series from European Central Bank

Abstract: Large-scale debt forbearance is a key policy tool during crises, yet targeting is challenging due to information asymmetries. Using transaction-level data from a Portuguese bank during COVID-19, we find that financially fragile households are more likely to enter forbearance, irrespective of income shocks. Mortgage payment suspension increases consumption and savings, but effects differ across households. Low liquid wealth and income are associated with a higher marginal propensity to consume. Additionally, ineligible households accessing forbearance show a higher propensity to consume than eligible ones. Our results suggest that observable household characteristics can help in the design of effective debt relief policies. JEL Classification: E21, E62, G28, G50, H31

Keywords: consumption; COVID-19 pandemic; debt forbearance; income; mortgages (search for similar items in EconPapers)
Date: 2025-02
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