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Title Bank Credit and Preferences for Redistribution: Experimental Evidence from the UK
Post date 01/13/2019
C1 Background and Explanation of Rationale

In the aftermath of the global financial crisis, some scholars have argued that the massive expansion of credit markets that predated the Great Recession did not only fuel an economic bubble, but also allowed individuals to smooth consumption and to “keep up with the Joneses” despite growing disparity between those with top-incomes and those in the low and middle classes. And while empirical research on the political and economic rivers of credit supply since the Great Recession has accumulated knowledge about the incentives that policymakers face to increase credit flows to society, the empirical evidence on the demand-side effects of credit expansions is sparse. Hence, we know little about how citizens react to better, more affordable access to credit, and most of the existing research implicitly assumes that myopic voters simply accept credit as a substitute for traditional welfare policies.

This study will provide causal evidence on the link between better credit access and support for the welfare state. It disentangles how different forms of bank credit affect spending and taxation preferences of individuals in the United Kingdom.

C2 What are the hypotheses to be tested?

Hypothesis 1: Credit card loans and unemployment support: We expect a positive interaction between credit card loans and unemployment support, all else constant. In other words, the difference in support for the most and least generous levels of unemployment support should be smallest when credit card loans are most affordable. (The interaction is positive because of the way in which the questions are asked; increasing interest rates for credit card loans correspond to less affordable credit).

Hypothesis 2: Housing loans and unemployment support: We expect a positive interaction between housing loans and unemployment support, all else constant. In other words, the difference in support for the most and least generous levels of unemployment support should be smallest when housing loans are cheapest.

Hypothesis 3: Credit card loans and basic social security for low-income families: we do not expect to find a statistically significant interaction effect for credit card loans and basic social security for low-income families, as this type of credit cannot be a permanent substitute for low income. Finding a positive interaction effect, would go counter to our theoretical expectations.

Hypothesis 4: Housing loans and basic social security for low-income families: We expect a positive interaction between housing loans and low-income social security, all else constant. In other words, the difference in support for the most and least generous levels of basic social security for low-income families should be smallest when housing loans are cheapest.

Hypothesis 5: Credit card loans and average income tax: We expect a negative interaction between credit card loans and average income tax, all else constant. In other words, the difference in support for the highest and the lowest taxation levels is largest when credit card loans are most affordable.

Hypothesis 6: Housing loans and average income tax: We expect a negative interaction between housing loans and average income tax, all else constant. In other words, the difference in support for the highest and the lowest taxation levels is largest when housing loans are cheapest.

C3 How will these hypotheses be tested? *

We conduct a conjoint analysis in the UK.

Respondents are presented with and choose between two countries that vary on five dimensions: the availability of credit card loans, the availability of mortgage loans, the generosity of publicly-provided unemployment support, support for low-income families, and the average income tax rates.

We estimate interaction effects between the credit measures (credit card loans; mortgage loans) and welfare state measures (taxation; unemployment support; support for low-income families) in order to analyze as to whether the availability of credit attenuates demands for welfare spending and respondents’ acceptance of taxation. Please see further details in the pre-registration plan.

C4 Country United Kingdom
C5 Scale (# of Units) 1,200 respondents
C6 Was a power analysis conducted prior to data collection? Yes
C7 Has this research received Insitutional Review Board (IRB) or ethics committee approval? Yes
C8 IRB Number Washington University IRB ID#201812009; University of Oxford CUREC: R61546/RE001
C9 Date of IRB Approval December 11, 2018
C10 Will the intervention be implemented by the researcher or a third party? Bilendi
C11 Did any of the research team receive remuneration from the implementing agency for taking part in this research? No
C12 If relevant, is there an advance agreement with the implementation group that all results can be published? No
C13 JEL Classification(s) not provided by authors