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Home Equity Lending and Retail Spending: Evidence from a Natural Experiment in Texas

Author

Listed:
  • Chadi S. Abdallah
  • William D. Lastrapes

Abstract

We estimate how spending in Texas responded to a 1997 constitutional amendment that relaxed severe restrictions on home equity lending. We use this event as a natural experiment to estimate the importance of credit constraints. If households are credit-constrained, such an increase in credit availability will increase their spending. We find that Texas retail sales at the county and state levels increased significantly after the amendment, lending support to the credit-constraint hypothesis. We confirm these findings and refine our interpretation of the estimated aggregate-level responses using household-level data on home equity loans. (JEL D14, E21, G21, G28)

Suggested Citation

  • Chadi S. Abdallah & William D. Lastrapes, 2012. "Home Equity Lending and Retail Spending: Evidence from a Natural Experiment in Texas," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 94-125, October.
  • Handle: RePEc:aea:aejmac:v:4:y:2012:i:4:p:94-125
    Note: DOI: 10.1257/mac.4.4.94
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    Citations

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    Cited by:

    1. Nyakabawo, Wendy & Miller, Stephen M. & Balcilar, Mehmet & Das, Sonali & Gupta, Rangan, 2015. "Temporal causality between house prices and output in the US: A bootstrap rolling-window approach," The North American Journal of Economics and Finance, Elsevier, vol. 33(C), pages 55-73.
    2. Guerrieri, Luca & Iacoviello, Matteo, 2017. "Collateral constraints and macroeconomic asymmetries," Journal of Monetary Economics, Elsevier, vol. 90(C), pages 28-49.
    3. repec:aea:aejpol:v:10:y:2018:i:1:p:268-97 is not listed on IDEAS
    4. Branch, William A. & Petrosky-Nadeau, Nicolas & Rocheteau, Guillaume, 2016. "Financial frictions, the housing market, and unemployment," Journal of Economic Theory, Elsevier, vol. 164(C), pages 101-135.
    5. Bibek Adhikari & James Alm, 2016. "Evaluating the Economic Effects of Flat Tax Reforms Using Synthetic Control Methods," Southern Economic Journal, Southern Economic Association, vol. 83(2), pages 437-463, October.
    6. Fuchs-Schündeln, N. & Hassan, T.A., 2016. "Natural Experiments in Macroeconomics," Handbook of Macroeconomics, Elsevier.
    7. Maïmouna DIAKITE & Jean-François BRUN & Souleymane DIARRA & Nasser ARY TANIMOUNE, 2017. "The effects of tax coordination on the tax revenue mobilization in West African Economic and Monetary Union (WAEMU)," Working Papers 201712, CERDI.
    8. Risto Herrala & Rima Turk-Ariss, 2013. "Credit Constraints, Political Instability, and Capital Accumulation," IMF Working Papers 13/246, International Monetary Fund.
    9. repec:ipg:wpaper:2014-476 is not listed on IDEAS
    10. Kumar, Anil, 2014. "Do restrictions on home equity extraction contribute to lower mortgage defaults? evidence from a policy discontinuity at the Texas’ border," Working Papers 1410, Federal Reserve Bank of Dallas.
    11. Sewin Chan & Andrew Haughwout & Andrew Hayashi & Wilbert Van Der Klaauw, 2016. "Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 393-413, March.
    12. Bibek Adhikari, 2015. "When Does Introducing a Value-Added Tax Increase Economic Efficiency? Evidence from the Synthetic Control Method," Working Papers 1524, Tulane University, Department of Economics, revised Nov 2015.
    13. Bibek Adhikari & Romain A Duval & Bingjie Hu & Prakash Loungani, 2016. "Can Reform Waves Turn the Tide? Some Case Studies Using the Synthetic Control Method," IMF Working Papers 16/171, International Monetary Fund.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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    1. Home Equity Lending and Retail Spending: Evidence from a Natural Experiment in Texas (AEJ:MA 2012) in ReplicationWiki

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