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Financial Trouble Across Generations
Do people end up in financial trouble simply because of adverse shocks to income and wealth, or is financial trouble related to persistent differences in financial attitudes and behavior that may be transmitted from generation to generation? We address this question using a new administrative data set with longitudinal information about defaults for the universe of personal loans in Denmark. We provide non-parametric evidence showing that the default propensity is more than four times higher for individuals with parents who are in default compared to individuals with parents not in default. This intergenerational relationship is apparent soon after children move into adulthood and become leg...
Subjective Unemployment Expectations
We study how individual unemployment expectations are shaped and updated using a unique longitudinal survey data set with subjective unemployment expectations. The survey data is linked with third-party reported administrative data on unemployment realizations, such that we are able to examine how prediction errors lead individuals to update their unemployment expectations. We find that people are constantly uncertain about their unemployment prospects. The uncertainty causes them to adjust their unemployment expectations when their predictions turned out to be incorrect. As a result, people's expectations concerning future unemployment are not constant and they are heterogeneous across the population at any given point in time. We document that unemployment expectations and prediction errors are important determinants of economic decisions, such as how much to save or whether to insure against earnings losses. Subjective unemployment expectations can thus help explain why people, who are observationally similar, make differently economic decisions.
Housing Collateral, Credit Constraints and Entrepreneurship
We study how a mortgage reform that exogenously increased access to credit had an impact on entrepreneurship, using individual-level micro data from Denmark. The reform allows us to disentangle the role of credit access from wealth effects that typically confound analyses of the collateral channel. We find that a $30,000 increase in credit availability led to a 12 basis point increase in entrepreneurship, equivalent to a 4% increase in the number of entrepreneurs. New entrants were more likely to start businesses in sectors where they had no prior experience, and were more likely to fail than those who did not benefit from the reform. Our results provide evidence that credit constraints do affect entrepreneurship, but that the overall magnitudes are small. Moreover, the marginal individuals selecting into entrepreneurship when constraints are relaxed may well be starting businesses that are of lower quality than the average existing businesses, leading to an increase in churning entry that does not translate into a sustained increase in the overall level of entrepreneurship.
