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American Economic Journal: Macroeconomics: Vol. 4 No. 4 (October 2012)

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Home Equity Lending and Retail Spending: Evidence from a Natural Experiment in Texas

Article Citation

Abdallah, Chadi S., and William D. Lastrapes. 2012. "Home Equity Lending and Retail Spending: Evidence from a Natural Experiment in Texas." American Economic Journal: Macroeconomics, 4(4): 94-125.

DOI: 10.1257/mac.4.4.94

Abstract

We estimate how spending in Texas responded to a 1997 constitutional amendment that relaxed severe restrictions on home equity lending. We use this event as a natural experiment to estimate the importance of credit constraints. If households are credit-constrained, such an increase in credit availability will increase their spending. We find that Texas retail sales at the county and state levels increased significantly after the amendment, lending support to the credit-constraint hypothesis. We confirm these findings and refine our interpretation of the estimated aggregate-level responses using household-level data on home equity loans. (JEL D14, E21, G21, G28)

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Authors

Abdallah, Chadi S. (Miami U OH)
Lastrapes, William D. (U GA)

JEL Classifications

D14: Personal Finance
E21: Macroeconomics: Consumption; Saving; Wealth
G21: Banks; Depository Institutions; Micro Finance Institutions; Mortgages
G28: Financial Institutions and Services: Government Policy and Regulation

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American Economic Journal: Macroeconomics


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