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

  • Chadi S. Abdallah
  • William D. Lastrapes

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)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.4.4.94
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Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 4 (2012)
Issue (Month): 4 (October)
Pages: 94-125

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Handle: RePEc:aea:aejmac:v:4:y:2012:i:4:p:94-125
Note: DOI: 10.1257/mac.4.4.94
Contact details of provider: Web page: https://www.aeaweb.org/aej-macro
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