Scandinavian Working Papers in Economics
Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)
No 329: Economic Scarcity and Consumers’ Credit Choice
Marieke Bos (), Chloé Le Coq () and Peter van Santen ()
Additional contact information
Marieke Bos: Stockholm School of Economics (SHOF), Postal: Drottninggatan 98, 111 60 Stockholm, Sweden
Chloé Le Coq: Stockholm School of Economics (SITE), Postal: Stockholm School of Economics (SITE), Sveavägen 65, 113 83 Stockholm, Sweden
Peter van Santen: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Abstract: This paper documents that increased scarcity right before a payday causally impacts credit choices. Exploiting a transfer system that randomly assigns the number of days between paydays to Swedish social welfare recipients, we find that low educated borrowers behave as if they are more present-biased when making credit choices during days when their budget constraints are exogenously tighter. As a result their default risk and debt servicing cost increase significantly. Access to mainstream credit or liquidity buffers cannot explain our results. Our findings highlight that increased levels of economic scarcity risk to reinforce the conditions of poverty.
Keywords: household finance; present bias; scarcity; credit choice
59 pages, October 1, 2016
Full text files
rap_wp329_161013.pdf
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