2026-09-18T23:42:25Zhttps://dspace.mit.edu/server/oai/requestoai:dspace.mit.edu:1721.1/1512322023-08-01T04:16:08Zcom_1721.1_7582com_1721.1_7581col_1721.1_131023
Palmer, Christopher
Wilson, John
Sloan School of Management
2023-07-31T19:24:37Z
2023-07-31T19:24:37Z
2023-06
2023-06-27T15:24:30.795Z
https://hdl.handle.net/1721.1/151232
One prediction of the Permanent Income Hypothesis is that households who are illiquid may wish to borrow against future income when there is a positive shock to their future income process. We informally model this prediction in a two-period setting and then test it using Equifax data. We demonstrate that Democrats experience a strong, positive shock to their expectations about their future real income around the 2020 presidential election. Our difference-in-difference analysis finds that in response Democrats were 0.08% more likely to take on debt in order to buy a car, and that their outstanding auto loan balance increased by $104 on average. Compared to the rate at which Democrats purchased cars via loan prior to the election, this 0.08% increase represents a 1.37% increase in the purchase rate. We validate our results by finding a similar result holds for installment loan purchases. We show that this result is robust to our empirical assumptions.
S.M.
Massachusetts Institute of Technology
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The Propensity to Borrow out of Expected Permanent Income
Thesis
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Master
Master of Science in Management Research
Publication
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<Abstract>One prediction of the Permanent Income Hypothesis is that households who are illiquid may wish to borrow against future income when there is a positive shock to their future income process. We informally model this prediction in a two-period setting and then test it using Equifax data. We demonstrate that Democrats experience a strong, positive shock to their expectations about their future real income around the 2020 presidential election. Our difference-in-difference analysis finds that in response Democrats were 0.08% more likely to take on debt in order to buy a car, and that their outstanding auto loan balance increased by $104 on average. Compared to the rate at which Democrats purchased cars via loan prior to the election, this 0.08% increase represents a 1.37% increase in the purchase rate. We validate our results by finding a similar result holds for installment loan purchases. We show that this result is robust to our empirical assumptions.</Abstract>
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