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Credit card debt and consumption: evidence from household-level data

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Abstract:

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.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840801964526

Affiliations: 1: Department of Economics, Middle East Technical University, Northern Cyprus Campus, Mersin 10, Turkey 2: Department of Economics, Ohio State University, USA

Publication date: February 1, 2010

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