Positive Externalities of Social Insurance: Unemployment Insurance and Consumer Credit

Joanne Hsu, David A. Matsa and Brian Melzer

No 20353, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the impact of unemployment insurance (UI) on consumer credit markets. Exploiting heterogeneity in UI generosity across U.S. states and over time, we find that UI helps the unemployed avoid defaulting on their mortgage debt. We estimate that UI expansions during the Great Recession prevented about 1.4 million foreclosures. Lenders respond to this decline in default risk by expanding credit access and reducing interest rates for low-income households at risk of being laid off. Our findings call attention to two benefits of unemployment insurance not previously highlighted: reducing deadweight losses from loan default and expanding access to credit.

JEL-codes: D14 G21 H31 R28 (search for similar items in EconPapers)
Date: 2014-07
New Economics Papers: this item is included in nep-mkt
Note: CF PE
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Citations: View citations in EconPapers (26)

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