Spillovers from Costly Credit

Brian T Melzer

Research output: Working paper

Abstract

Recent studies of credit access among low-income households find that payday loans can exacerbate, rather than alleviate, financial distress. I find that households with payday loan access are also more likely to use food assistance benefits and less likely to make child support payments required of non-resident parents. These findings suggest that borrowers in distress turn to transfer programs to supplement the household’s resources and prioritize loan payments over other liabilities like child support payments. In that way, borrowing produces negative externalities, with both taxpayers and non-resident family members bearing a cost due to payday lending.
Original languageEnglish (US)
Number of pages33
StatePublished - Aug 2014

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