Shale Shocked: Cash Windfalls and Household Debt Repayment

63 Pages Posted: 11 Sep 2020 Last revised: 30 May 2022

See all articles by Tony Cookson

Tony Cookson

affiliation not provided to SSRN

Erik Gilje

University of Pennsylvania - The Wharton School

Rawley Heimer

Arizona State University (ASU) - W.P. Carey School of Business

Date Written: September 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.

Suggested Citation

Cookson, Tony and Gilje, Erik and Heimer, Rawley, Shale Shocked: Cash Windfalls and Household Debt Repayment (September 2020). NBER Working Paper No. w27782, Available at SSRN: https://ssrn.com/abstract=3687938

Tony Cookson (Contact Author)

affiliation not provided to SSRN

Erik Gilje

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Rawley Heimer

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

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