The Brazilian Payroll Lending Experiment
AbstractIn 2004, Brazil provided an interesting natural experiment concerning personal credit. A new law was enacted allowing banks to offer loans with repayment through automatic payroll or social security benefit deduction, thus removing a significant part of the moral hazard problem by eliminating the choice of default when debtors are able to pay their loans out of their wages. We estimate the impact of the new law using car loans as a control group. We find that, at the industry level, the new law has caused a reduction in interest rates and an increase in the volume of personal credit.
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Date of creation: Apr 2010
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Credit markets; collateral; difference-in-differences. JEL Code: G21; D01; C33; K00; E44.;
Other versions of this item:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- K00 - Law and Economics - - General - - - General (including Data Sources and Description)
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-26 (All new papers)
- NEP-BAN-2010-06-26 (Banking)
- NEP-LAW-2010-06-26 (Law & Economics)
- NEP-URE-2010-06-26 (Urban & Real Estate Economics)
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