Consumption Smoothing or Consumption Binging? The Effects of Government-Led Consumer Credit Expansion In Brazil
71 Pages Posted: 1 Nov 2018 Last revised: 22 Aug 2023
Date Written: August 4, 2023
Brazil initiated a major credit expansion program through government banks in 2011. The program primarily targeted public sector workers with offers of payroll-backed loans. Using individual-level administrative data we find that the program led to a 15 percentage point rise in debt to initial income for public sector workers. We develop a new method for estimating workers' expected income growth, and show that ``consumption smoothing'' cannot explain the rise in consumer borrowing. Instead, the evidence supports ``consumption binging'': less financially sophisticated workers borrowed more at high real interest rates, and experienced both higher consumption volatility and lower average consumption.
Keywords: credit booms, payroll loans, credit card expenditure
JEL Classification: D12, D14, E21, E32, G21, G28
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