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Vol. 75, No. 6
Posted 1993-11-01

The Determinants of Consumer Installment Credit

by Sangkyun Park

The behavior of consumer credit has attracted considerable attention during the last 10 years. After growing rapidly in the mid-1980s, consumer installment credit declined in many quarters during 1991 and 1992. Changes in consumption expenditures, however, may not fully explain the wide fluctuations in the growth of consumer credit. Sangkyun Park examines both short-term fluctuations and the long-term trends of consumer installment credit in relation to economic and institutional factors. Between 1970 and 1992, particularly significant factors explaining the growth of consumer installment credit were the emergence of home equity lines of credit, the difference between the real after-tax interest rate on consumer credit and the return on household assets, and consumers’ confidence about the future. This finding suggests that the Tax Reform Act of 1986, which contributed to the emergence of home equity lines of credit and raised the real after-tax interest rate on conventional consumer credit, played a significant role in slowing down the growth of consumer installment credit in the early 1990s.




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