Essays on consumer credit in the United Kingdom : consumer protection, consumption and well-being, and financial resilience

This dissertation explores consumer credit and its effects on the British economy and the British households. Chapter 1 offers a brief introduction to the issues around consumer credit that each of the subsequent chapters covers. Chapter 2 is the first empirical chapter and considers how the enactment of appropriate regulation can improve the understanding of the cost of credit. This chapter studies the effects of the Consumer Credit Act 1974 on the British economy through the introduction of the calculation and publication of the true cost of lending. Moreover, it tests the presence of a structural break in the relationship between the price and volume of consumer credit. Furthermore, the paper analyzes the effects of shocks to consumer credit on inflation and households’ savings. Chapter 3 turns to analyze the impact of consumer credit on households’ consumption and self-reported well-being across the income distribution. This chapter analyzes whether consumer credit can reduce consumption inequality by allowing poorer households to increase their consumption of consumer durables and leisure or, if on the contrary, it worsens self-reported measures of well-being. Next, chapter 4 studies households’ financial resilience and evaluates the role that consumer credit plays in affecting it. This chapter answers the question Is there a measure that correlates with households’ probability of falling into financial distress and, moreover, predicts the likelihood of these households over- coming said distress? To answer this question, this chapter proposes as a proxying measure the logarithmic ratio of households’ financial assets and short-term liabilities. Moreover, this chapter reports the asymmetries of ownership of financial assets and short-term credit across the income and wealth distributions. Then it analyzes the effects of said proxy on the occurrence probability of a series of financial resilience-related events. Finally, chapter 5 offers tentative overall conclusions and points to a future research agenda.