Reverse causality is another possible confound, since specific actions such as for example danger aversion and time choices could figure out indebtedness, as opposed to the reverse. We are able to rule down reverse causality as the noticeable alterations in debt we learned resulted from exogenously awarded debt settlement. But, our estimate of this ramifications of debt settlement may be biased if still credit card debt relief is strongly correlated with initial debts.
To deal with this, To address this we show that your debt relief choices produced by social employees led to significant variation, in order for more indebted individuals failed to always get more relief. We discovered that 72% of our participants received notably less relief than their total qualified debts, and, overall, credit card debt relief quantities were just moderately correlated (0.55) with initial financial obligation amounts. On average, relief issued was SGD 3,709 lower than total debts that are eligible as well as the SD regarding the huge huge difference was SGD 7,293. As an additional robustness check, we excluded individuals that has all qualified debts relieved (SI Appendix, Table S9) and discovered broadly comparable outcomes.
Next, we considered liquidity constraints as a alternate description: Highly indebted individuals may show present bias and danger aversion because having cash at your fingertips is much more crucial when it’s hard to borrow (13). In that case, alterations in choice creating might be owing to improvements in liquidity constraints, instead of alterations in financial obligation framework.
Used, the result of debt settlement on liquidity constraints is bound. Liquidity from usage of credit rating is not likely to enhance postrelief because finance institutions in Singapore have to implement earnings test to give credit, and, thus, our test will not be eligible for credit, even with debt settlement.