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Paper Number

1352

Paper Type

Complete

Description

Understanding the effects of credit on consumption is crucial for guiding users’ consumption behavior, designing financial marketing strategies, and identifying credit's value in stimulating the economy. Whereas several studies have endeavored on this issue, most simply utilize observations of a single credit channel and/or focus on an overall effect without considering the potentially heterogeneous short-term and long-term consumption changes. This study, leveraging a quasi-experimental design with high-resolution transaction data, examines how people respond to credit in both short- and long-term periods. Results show that credit users’ consumption amount significantly expand by 51.74% after getting access to credit in the short term. However, they ultimately cut their consumption by 4.02% to cope with financial constraints in the long term. We also reveal and quantify the spillover effects of credit on consumption with savings channels. We draw on regulatory focus theory to rationalize the changes on consumers’ consumption behavior after credit activation.

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21-Digital

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Dec 12th, 12:00 AM

Brake or Step On the Gas? Empirical Analyses of Credit Effects on Individual Consumption

Understanding the effects of credit on consumption is crucial for guiding users’ consumption behavior, designing financial marketing strategies, and identifying credit's value in stimulating the economy. Whereas several studies have endeavored on this issue, most simply utilize observations of a single credit channel and/or focus on an overall effect without considering the potentially heterogeneous short-term and long-term consumption changes. This study, leveraging a quasi-experimental design with high-resolution transaction data, examines how people respond to credit in both short- and long-term periods. Results show that credit users’ consumption amount significantly expand by 51.74% after getting access to credit in the short term. However, they ultimately cut their consumption by 4.02% to cope with financial constraints in the long term. We also reveal and quantify the spillover effects of credit on consumption with savings channels. We draw on regulatory focus theory to rationalize the changes on consumers’ consumption behavior after credit activation.

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