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Credit Card Debt and Consumption: Evidence from Household-Level Data

  • Lucia Dunn

    ()

  • Tufan Ekici

    ()

This research investigates the relationship between credit card debt and consumption using household level data. This is a departure from the previous studies which have used aggregate measures of consumption and general debt such as the Debt Service Ratio or total revolving credit. We use a detailed monthly survey of credit card use to impute credit card debt to respondents from the Consumer Expenditure Survey sample. In contrast to some earlier studies using aggregate data, we find a negative relationship between debt and consumption growth. Our work shows that a $1000 increase in credit card debt results in a decrease in quarterly consumption growth of almost 2%. Investigations are also made into effects of debt within different age categories and into the impact of expected income growth on the debt-consumption relationship.

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File URL: http://economics.sbs.ohio-state.edu/pdf/ldunn/wp06-01.pdf
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Paper provided by Ohio State University, Department of Economics in its series Working Papers with number 06-01.

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Date of creation: Mar 2006
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Handle: RePEc:osu:osuewp:06-01
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  1. Brito, Dagobert L & Hartley, Peter R, 1995. "Consumer Rationality and Credit Cards," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 400-433, April.
  2. Paul S. Calem & Loretta J. Mester, . "Consumer Behavior and the Stickiness of CreditCard Interest Rates," Rodney L. White Center for Financial Research Working Papers 3-94, Wharton School Rodney L. White Center for Financial Research.
  3. Sarah Brown & Karl Taylor & Gaia Garino & Stephen Wheatley Price, 2003. "Debt and financial expectations: an individual and household level analysis," Discussion Papers in Economics 03/5, Department of Economics, University of Leicester, revised Feb 2004.
  4. Dean M. Maki, 2000. "The growth of consumer credit and the household debt service burden," Finance and Economics Discussion Series 2000-12, Board of Governors of the Federal Reserve System (U.S.).
  5. Lucia Dunn & Sougata Kerr, 2002. "Consumer Search Behavior in the Changing Credit Card Market," Working Papers 02-03, Ohio State University, Department of Economics.
  6. David B. Gross, 2002. "An Empirical Analysis of Personal Bankruptcy and Delinquency," Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 319-347, March.
  7. Sydney Ludvigson, 1996. "Consumption and credit: a model of time-varying liquidity constraints," Research Paper 9624, Federal Reserve Bank of New York.
  8. Karen Dynan & Kathleen Johnson & Karen Pence, 2003. "Recent changes to a measure of U.S. household debt service," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 417-426.
  9. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, vol. 81(1), pages 50-81, March.
  10. Elizabeth Laderman, 1996. "What's behind problem credit card loans?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jul19.
  11. Andreas Lehnert & Dean M. Maki, 2002. "Consumption, debt and portfolio choice: testing the effect of bankruptcy law," Finance and Economics Discussion Series 2002-14, Board of Governors of the Federal Reserve System (U.S.).
  12. Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1104-13, December.
  13. Agarwal, Sumit & Liu, Chunlin & Mielnicki, Lawrence, 2003. "Exemption laws and consumer delinquency and bankruptcy behavior: an empirical analysis of credit card data," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(2), pages 273-289.
  14. Lusardi, Annamaria, 1996. "Permanent Income, Current Income, and Consumption: Evidence from Two Panel Data Sets," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 81-90, January.
  15. Karen E. Dynan, 1993. "How prudent are consumers?," Working Paper Series / Economic Activity Section 135, Board of Governors of the Federal Reserve System (U.S.).
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