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Consumer Debt and Default: A Macro Perspective

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  • Exler, Florian

    () (University of Vienna)

  • Tertilt, Michèle

    () (University of Mannheim)

Abstract

In this survey, we review the quantitative macroeconomic literature analyzing consumer debt and default. We start by providing an overview of consumer bankruptcy law in the US and document the relevant institutional changes over time. We proceed with a comprehensive empirical section, describing key facts about consumer debt, defaults and delinquencies, as well as charge-off and interest rates for the United States. In addition to the evolution of these variables over time, we construct life-cycle profiles using data from the Survey of Consumer Finances and show that debt and defaults display a clear hump-shaped profile by age. Third, we show how credit card debt has evolved along the income distribution. Finally, we document a large amount of heterogeneity in credit card interest rates across consumers. In the second part of the survey, we describe what has by now become the workhorse model of consumer credit and default. We discuss a quantitative version of the model and use it to decompose the main reasons for default. We also use the model to illustrate how the details of default costs matter. The remainder of the survey then discusses the literature centered around two questions. First, what are the welfare implications of various bankruptcy laws? And second, what caused the rise in filings over time? We end with a discussion of open questions and fruitful avenues for future research

Suggested Citation

  • Exler, Florian & Tertilt, Michèle, 2020. "Consumer Debt and Default: A Macro Perspective," IZA Discussion Papers 12966, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp12966
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    References listed on IDEAS

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    1. Mankart, Jochen & Rodano, Giacomo, 2015. "Personal bankruptcy law, debt portfolios, and entrepreneurship," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 157-172.
    2. Victor Rios-Rull & Dean Corbae: & Satyajit Chatterjee, 2011. "A Theory of Credit Scoring and the Competitive Pricing of Default Risk," 2011 Meeting Papers 1115, Society for Economic Dynamics.
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    5. Gajendran Raveendranathan, 2018. "Improved Matching, Directed Search, and Bargaining in the Credit Card Market," Department of Economics Working Papers 2018-05, McMaster University.
    6. Leonardo Bursztyn & Stefano Fiorin & Daniel Gottlieb & Martin Kanz, 2019. "Moral Incentives in Credit Card Debt Repayment: Evidence from a Field Experiment," Journal of Political Economy, University of Chicago Press, vol. 127(4), pages 1641-1683.
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    8. Olga Gorbachev & María José Luengo-Prado, 2019. "The Credit Card Debt Puzzle: The Role of Preferences, Credit Access Risk, and Financial Literacy," The Review of Economics and Statistics, MIT Press, vol. 101(2), pages 294-309, May.
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    16. Kyle F. Herkenhoff & Gajendran Raveendranathan, 2019. "Who Bears the Welfare Costs of Monopoly? The Case of the Credit Card Industry," Working Papers 2019-071, Human Capital and Economic Opportunity Working Group.
    17. Daphne Chen & Jake Zhao, 2017. "The Impact of Personal Bankruptcy on Labor Supply Decisions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 40-61, October.
    18. Chen, Daphne & Corbae, Dean, 2011. "On the welfare implications of restricting bankruptcy information," Journal of Macroeconomics, Elsevier, vol. 33(1), pages 4-13, March.
    19. Leonardo Bursztyn & Stefano Fiorin & Daniel Gottlieb & Martin Kanz, 2019. "Moral Incentives in Credit Card Debt Repayment: Evidence from a Field Experiment," Journal of Political Economy, University of Chicago Press, vol. 127(4), pages 1641-1683.
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    Cited by:

    1. Satyajit c & Dean Corbae & Kyle Dempsey & Jose-Victor Rios-Rull, 2020. "A Quantitative Theory of the Credit Score," PIER Working Paper Archive 20-030, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    2. Exler, Florian & Livshits, Igor & MacGee, Jim & Tertilt, Michèle, 2020. "Consumer Credit with Over-Optimistic Borrowers," CEPR Discussion Papers 15570, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    consumer debt; bankruptcy; chapter 7; default; credit cards; charge-offs;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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