Date of Award

2015

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Graduate Group

Finance

First Advisor

David K. Musto

Abstract

This dissertation studies two questions in corporate and household finance: 1) Can fiscal stimulus policies targeted at firms incentivize investment and improve firm financial conditions?, and 2) Do the effects of consumer credit on household well-being vary with differing economic states?

In the first chapter, I examine the effects of a countercyclical fiscal policy that relaxed firm financial constraints by giving firms additional tax refunds. To estimate the policy's impact, I use a regression kink design strategy that takes advantage of a discontinuity in the slope of the tax refund formula. I find that after passage of the 2002 policy, firms allocated $0.40 of every tax refund dollar to investment. After passage of the 2009 policy, in contrast, firms used the refunds to increase cash holdings ($0.96 of every refund dollar) before paying down debt in the following year. While the policy had no discernable effect on investment in the most recent recessionary period, it did reduce firms' bankruptcy risk and the probability of a future credit rating downgrade.

In the second chapter, I provide empirical evidence that access to credit has state-dependent effects on household material well-being, even within the market for one credit product--in my case, payday lending. Using detailed data on household location and consumption patterns, I show that access to payday credit lowers material well-being in "normal" states of the world. Loan access results in substantial declines in nondurable goods spending overall and in housing-related spending particularly. Following temporary negative shocks, however--extreme weather events like hurricanes and blizzards--I show that payday loan access helps households smooth consumption and improves material well-being. After extreme weather events, loan access mitigates declines in spending on food, mortgage payments, and home repairs.

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