Shale Shocked: Cash Windfalls and Household Debt Repayment

79 Pages Posted: 16 Oct 2020 Last revised: 6 Jul 2022

See all articles by J. Anthony Cookson

J. Anthony Cookson

University of Colorado at Boulder - Leeds School of Business

Erik Gilje

University of Pennsylvania - The Wharton School

Rawley Heimer

Boston College - Department of Finance

Date Written: July 5, 2022

Abstract

Using individual credit bureau data matched with cash windfalls from fracking, we estimate that windfall recipients reduce debt-to-income by 2.4 percentage points relative to no-windfall controls. Debt repayment effects are 3 times stronger for subprime individuals than for prime individuals. Based on the timing of upfront versus continuing cash payments, debt repayment coincides with the timing of payments but not with news about future payments. These findings present a challenge for purely forward-looking models of debt. Indeed, when we incorporate a windfall shock into a forward-looking model, the model predicts an increase in debt that runs counter to our evidence of debt repayment.

Keywords: household deleveraging; debt repayment; cash windfalls; shale; Fracking Revolution

JEL Classification: G51, D14, N52, E21

Suggested Citation

Cookson, J. Anthony and Gilje, Erik and Heimer, Rawley, Shale Shocked: Cash Windfalls and Household Debt Repayment (July 5, 2022). Available at SSRN: https://ssrn.com/abstract=3682223 or http://dx.doi.org/10.2139/ssrn.3682223

J. Anthony Cookson (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Erik Gilje

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Rawley Heimer

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

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