Abstract

http://ssrn.com/abstract=2185198
 


 



Positive Externalities of Social Insurance: Unemployment Insurance and Consumer Credit


Joanne W. Hsu


Federal Reserve Board of Governors

David A. Matsa


Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Brian Melzer


Northwestern University - Kellogg School of Management - Department of Finance

July 15, 2014


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.

Number of Pages in PDF File: 60

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Date posted: December 5, 2012  

Suggested Citation

Hsu, Joanne W. and Matsa, David A. and Melzer, Brian, Positive Externalities of Social Insurance: Unemployment Insurance and Consumer Credit (July 15, 2014). Available at SSRN: http://ssrn.com/abstract=2185198 or http://dx.doi.org/10.2139/ssrn.2185198

Contact Information

Joanne W. Hsu
Federal Reserve Board of Governors ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
David A. Matsa (Contact Author)
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8337 (Phone)
847-491-5719 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Brian Melzer
Northwestern University - Kellogg School of Management - Department of Finance ( email )
Evanston, IL 60208
United States
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