Race, Wealth, and Credit Markets
Paper Session
Saturday, Jan. 8, 2022 3:45 PM - 5:45 PM (EST)
- Chair: Amir Kermani, University of California-Berkeley
The Racial Wealth Gap, 1860-2020
Abstract
The racial wealth gap is the largest of the economic disparities between Black and whiteAmericans, with a white-to-Black per capita wealth ratio of 6 to 1. It is also among the
most persistent. In this paper, we provide a new long-run series on white-to-Black per capita
wealth ratios from 1860 to 2020, combining data from the US Decennial Census, historical
state tax records, and a newly harmonized version of the Survey of Consumer Finances
(1949-2019). Using these data we show that wealth convergence was rapid in the 50 years
after Emancipation, but slowed to a halt by 1950. A simple model of wealth accumulation by
racial group reveals that even under equal conditions for wealth accumulation, convergence
is a distant scenario given vastly different starting conditions under slavery. Accounting for
post-Emancipation differences in wealth accumulating opportunities indicates that the racial
wealth gap is on track to arrive at a “steady state,” close to today’s levels. Our findings shed
light on the importance of policies such as reparations, which address the historical origins
of today’s persistent gap, as well as policies that reduce inequality and thereby improve the
relative wealth position of Black Americans.
Do Credit Policies Affect Racial Groups Differently? Evidence from the Mortgage Market
Abstract
This paper studies how a credit supply increase in the mortgage market disproportionately affects racial groups. The paper utilizes a quasi-exogenous credit supply shock that originated in the repo market in 2005 and was transmitted to the housing market. Using a triple difference research design, the paper establishes that although the shock led to an overall increase in credit, a 10% increase in exposure to the shock led zip codes with higher percent Black inhabitants to receive 17% fewer mortgages in the post-period. Zip codes with higher percent Hispanic inhabitants received 14% more mortgages and zip codes with higher percent White inhabitants experienced no statistically significant change in mortgage originations in the post-period. The effects hold after controlling for mortgage contract characteristics. This paper furthers our understanding of the factors that drive the racial homeownership gap by estimating the elasticity of mortgage supply to race following a credit supply increase.Information Design in Consumer Credit Markets
Abstract
Over 30m US adults do not use formal consumer credit. How many of these are inefficiently excluded because they lack a credit history or have a poor credit score? We estimate roughly 40% of currently non-transacted loans would be (first-best) efficient to provide. We also characterize how changes to credit report data could improve second-best efficiency subject to constraints imposed by adverse selection, or the correlation between unobserved credit risk and credit demand, among US consumers. To quantify these gains from "credit information design," we develop a structural model of credit histories, rating systems, and dynamic hidden credit risk and demand types. The model features a mapping of credit market behavior into credit scores, which determine pricing, consumers' strategic borrowing decisions, and hence future scores. Using quasi-experimental variation in US consumer credit panel data, we find higher persistence in the dynamics of consumer demand than risk, contributing to the share of non-borrowing consumers who face high prices but are low risk. Studying counterfactuals and credit market reform proposals, we estimate that requiring credit histories to be shorter -- or to forget past default sooner -- would lead to substantial efficiency gains and help non-borrowing consumers escape the "no history trap."JEL Classifications
- G5 - Household Finance
- H0 - General