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  3. American Economic Journal: Macroeconomics
  4. October 2012
  5. Home Equity Lending and Retail Spending: Evidence from a Natural Experiment in Texas

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

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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)

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

Additional Materials

JEL Classification

  • 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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