Credit Card Debt Puzzles and Debt Revolvers for Self Control

Posted: 26 Jan 2009

See all articles by Carol C. Bertaut

Carol C. Bertaut

Board of Governors of the Federal Reserve System

Michael Haliassos

Goethe University Frankfurt - House of Finance; Goethe University Frankfurt - Faculty of Economics and Business Administration; CEPR; NETSPAR

Michael Reiter

Institute for Advanced Studies (IHS)

Multiple version iconThere are 3 versions of this paper

Date Written: January 25, 2009

Abstract

Most US credit card holders revolve high-interest debt, often with substantial liquid and retirement assets. We model separation of accounting from shopping allowed by credit cards, in a rational, dynamic game. When the shopper is more impatient than the accountant, selling assets to repay debt is not necessarily optimal, as the shopper can restore debt. Modest relative impatience generates asset-debt co-existence and target utilization rates, matching incidence and median assets of debt revolvers with substantial assets. Empirical evidence is consistent with a role for spending control considerations, after allowing for standard determinants of credit card debt.

Keywords: Credit cards, debt, household portfolios

JEL Classification: G11, E21

Suggested Citation

Bertaut, Carol C. and Haliassos, Michael and Reiter, Michael, Credit Card Debt Puzzles and Debt Revolvers for Self Control (January 25, 2009). Review of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1332707

Carol C. Bertaut

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Michael Haliassos (Contact Author)

Goethe University Frankfurt - House of Finance

Theodor-W.-Adorno-Platz 3
PF H32
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
PF H32
Frankfurt am Main, D-60323
Germany

CEPR

London
United Kingdom

NETSPAR ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Michael Reiter

Institute for Advanced Studies (IHS) ( email )

Josefstaedter Strasse 39
Vienna, A-1080
Austria

Register to save articles to
your library

Register

Paper statistics

Abstract Views
675
PlumX Metrics