Year: 2024
Type: article
Abstract: We empirically establish that unemployed individuals maintain significant access to credit and that upon a layoff, the unconstrained borrow while the constrained default and delever. Motivated by these findings, we develop a theory of credit lines and labor income risk to analyze optimal transfers to the unemployed. Since credit lines offer fixed interest rates and limits, credit lines are unresponsive to layoffs and provide greater consumption insurance relative to when debt is repriced period by period. At US levels of credit lines, the government can optimally reduce transfers to the unemployed, whereas this is not true when debt is counterfactually repriced period by period.
Source: Journal of Political Economy
DOI: 10.1086/729583
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
Awards: EITM: Developing the Tools to Understand Human Performance: An Empirical Infrastructure to Foster Research Collaboration, ITR-(ECS+ASE)-(dmc+int): Info Tech Challenges for Secure Access to Confidential Social Science Data, The Impact of Consumer Credit Access on Earnings Mobility, Entrepreneurship and Income Inequality, Dynamic Employer-Household Data and the Social Data Infrastructure
OpenAlex ID: W3124299604