Shale Shocked: Cash Windfalls and Household Debt Repayment
77 Pages Posted: 16 Oct 2020 Last revised: 21 Sep 2022
Date Written: September 19, 2022
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: Suggested Citation