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The Heterogeneous Effects of Household Debt Relief

Author

Listed:
  • Adelino, Manuel
  • Ferreira, Miguel
  • Oliveira, Miguel

Abstract

Large-scale debt forbearance is a key policy tool in times of economic distress, but it is challenging to design a targeted program due to information asymmetries between lenders and borrowers. Using transaction-level data from a leading Portuguese bank, we study which households access a widely advertised and easily accessible forbearance program during the COVID-19 pandemic and how it affects household consumption and savings. We show that the average household that enters forbearance is fragile, and suspending mortgage payments has positive and persistent effects on consumption and savings. The effects, however, are very heterogeneous across households. Households eligible for forbearance avoid a drop in consumption, while ineligible households, who nevertheless access forbearance, increase consumption. In addition, the consumption response is stronger among low-wealth and low-income households, while the savings response is stronger among high-wealth and high-income households.

Suggested Citation

  • Adelino, Manuel & Ferreira, Miguel & Oliveira, Miguel, 2024. "The Heterogeneous Effects of Household Debt Relief," CEPR Discussion Papers 19036, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19036
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    More about this item

    Keywords

    Household finance; Mortgages; Consumption; Savings; Income; Default;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G50 - Financial Economics - - Household Finance - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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