Shale Shocked: Cash Windfalls and Household Debt Repayment

62 Pages Posted: 16 Oct 2020

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: August 26, 2020

Abstract

How do persistent cash flow shocks affect debt repayment across the distribution of households? Using individual data on natural gas shale royalty payments matched with credit bureau data for 215,639 consumers, we estimate that individuals repay 33 cents of debt per dollar of windfall, and that initially-subprime individuals repay approximately 5 times more debt than initially-prime individuals do. This difference in debt repayment is driven by changes to revolving debt balances. Finally, we show that debt repayment precedes durable goods consumption, particularly for households who were initially financially constrained. These results shed new light on how deleveraging affects household consumption.

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 (August 26, 2020). 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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