Consumption smoothing or consumption binging? The effects of government-led consumer credit expansion in Brazil

Gabriel Garber, Atif Mian, Jacopo Ponticelli*, Amir Sufi

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

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.

Original languageEnglish (US)
Article number103834
JournalJournal of Financial Economics
Volume156
DOIs
StatePublished - Jun 2024

Keywords

  • Credit booms
  • Credit card expenditure
  • Payroll loans

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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