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Shale shocked: Cash windfalls and household debt repayment

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  • Cookson, J. Anthony
  • Gilje, Erik P.
  • Heimer, Rawley Z.

Abstract

Using individual credit bureau data matched with cash windfalls from fracking, we estimate that windfall recipients reduce debt-to-income by 2.4 percentage points relative to no-windfall controls. Debt repayment effects are 3 times stronger for subprime individuals than for prime individuals. Based on the timing of upfront versus continuing cash payments, debt repayment coincides with the timing of payments but not with news about future payments. These findings present a challenge for purely forward-looking models of debt. Indeed, when we incorporate a windfall shock into a forward-looking model, the model predicts an increase in debt that runs counter to our evidence of debt repayment.

Suggested Citation

  • Cookson, J. Anthony & Gilje, Erik P. & Heimer, Rawley Z., 2022. "Shale shocked: Cash windfalls and household debt repayment," Journal of Financial Economics, Elsevier, vol. 146(3), pages 905-931.
    • Handle: RePEc:eee:jfinec:v:146:y:2022:i:3:p:905-931
    DOI: 10.1016/j.jfineco.2022.09.008
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    More about this item

    Keywords

    Household finance; Cash windfalls; Fracking; Shale; Credit bureau data; Household debt;
    All these keywords.

    JEL classification:

    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • N52 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - U.S.; Canada: 1913-

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