Consumption Smoothing or Consumption Binging? The Effects of Government-Led Consumer Credit Expansion In Brazil

71 Pages Posted: 1 Nov 2018 Last revised: 22 Aug 2023

See all articles by Gabriel Garber

Gabriel Garber

Government of the Federative Republic of Brazil - Central Bank of Brazil

Atif R. Mian

Princeton University - Department of Economics; Princeton University - Princeton School of Public and International Affairs; NBER

Jacopo Ponticelli

Northwestern University - Kellogg School of Management; NBER

Amir Sufi

University of Chicago - Booth School of Business; NBER

Multiple version iconThere are 2 versions of this paper

Date Written: August 4, 2023

Abstract

Brazil initiated a major credit expansion program through government banks in 2011. The program primarily targeted public sector workers with offers of payroll-backed loans. Using individual-level administrative data we find that the program led to a 15 percentage point rise in debt to initial income for public sector workers. We develop a new method for estimating workers' expected income growth, and show that ``consumption smoothing'' cannot explain the rise in consumer borrowing. Instead, the evidence supports ``consumption binging'': less financially sophisticated workers borrowed more at high real interest rates, and experienced both higher consumption volatility and lower average consumption.

Keywords: credit booms, payroll loans, credit card expenditure

JEL Classification: D12, D14, E21, E32, G21, G28

Suggested Citation

Garber, Gabriel and Mian, Atif R. and Ponticelli, Jacopo and Sufi, Amir, Consumption Smoothing or Consumption Binging? The Effects of Government-Led Consumer Credit Expansion In Brazil (August 4, 2023). Available at SSRN: https://ssrn.com/abstract=3263785 or http://dx.doi.org/10.2139/ssrn.3263785

Gabriel Garber

Government of the Federative Republic of Brazil - Central Bank of Brazil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70074-900
Brazil

Atif R. Mian

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Princeton University - Princeton School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jacopo Ponticelli

Northwestern University - Kellogg School of Management ( email )

2211 Campus Dr
Evanston, IL 60208
United States

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/ponticelli/index.html

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Amir Sufi (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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