Essays on Household Finance and Small Business Credit

Chapter 1 examines whether closing disparities in credit access between spouses can help reduce consumption inequality in the household. The 2013 reversal of the Truth-in-Lending Act increased the borrowing capacity of secondary earners in equitable-distribution states but not in community-property states, where division-of-property laws superseded the policy change. Using a matched difference-in-differences design and administrative financial-transaction records measuring the credit and consumption of each spouse, I show that this reversal closed the credit gap between spouses by increasing secondary earners’ credit card limits. In turn, spouses shared consumption more equally, reducing their pre-reversal consumption gap. Delinquency rates were not measurably impacted, suggesting that household financial standing did not worsen. These results are consistent with a model of joint decision-making under limited commitment, in which credit causes a shift in marital bargaining power. Chapter 2 explores the investment decisions of small business owners when their child goes to college using the linked financial accounts of small businesses and their owners. By comparing small business owner households with college-entering aged children to otherwise similar households with near college-entering aged children, I show that small business owners respond to the increase in education spending by downsizing business production and liquidating the business. These results suggest that business owners’ family financial decisions affect the real economy as business owners struggle to separate business capital demands from personal finances. Joint work with Natalie Cox and Constantine Yannelis in Chapter 3 uses notches in the loan guarantee rate schedule for Small Business Administration loans to estimate the elasticity of bank lending volume to loan guarantees. We show significant bunching in the loan distribution on the side of the size threshold that carries a more generous loan guarantee. The excess mass implies that increasing guarantee generosity by one percentage point of loan principal would increase per-loan lending volume by $19,000. Placebo results indicate that bunching disappears when the guarantee notch is eliminated. We conclude that lending is highly sensitive to loan guarantees, and thus, federal guarantee programs have the potential to increase lending levels when borrowing is inefficiently low.

Name thesis:degree_name

Doctoral

Department dc:contributor.department

Sloan School of Management

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2022

Author dc:creator

• Kim, Olivia S.

Advisor dc:contributor.advisor

• Parker, Jonathan

Statement dc:rights

• In Copyright - Educational Use Permitted
• Copyright MIT

Licence dc:rights.uri

• http://rightsstatements.org/page/InC-EDU/1.0/

Handle dc:identifier.uri

https://hdl.handle.net/1721.1/145134

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/145134