Essays in Debt, Income, and Inequality

Abstract

This dissertation is comprised of three essays on various institutions influencing individuals' incomes and the aggregate effects of those institutions on social welfare. Chapter one investigates a large government-sponsored student loan program known as income-driven repayment (IDR). By aligning the repayment burden with the returns to college, IDR may prevent default and improve financial well-being among credit-constrained borrowers but carries a potential cost to social welfare through moral hazard. In this chapter, I estimate the causal impact of IDR on repayment rates, balances, homeownership, and consumption proxies, and find that enrolling in IDR is associated with a dramatic decrease in delinquencies and a significant increase in credit card spending and homeownership rates. Chapter two focuses on the private market (or lack thereof) for income insurance products. Specifically, I empirically test the hypothesis that adverse selection prevents the profitable sale of income-share agreements (ISAs) for college financing. By assessing the predictive power of survey responses concerning expected future income, I find evidence that student borrowers hold private knowledge of their future income which, under reasonable assumptions, can cause a hypothetical ISA market to completely unravel. Chapter three, which is coauthored with Henry Farber, Ilyana Kuziemko, and Suresh Naidu, examines the role of unions in aggregate income trends over the twentieth century. In this chapter, we present a number of results that, across a variety of identifying assumptions, suggest unions have had a significant, equalizing effect on the income distribution over a long sample period.