Household debt,automatic bill payments and inattention: Theory and evidence

In this article we analyze the impact of automatic bill payment (ABP) on household debt. We present a theoretical intertemporal consumption model that shows an inattention effect when individuals subscribe an ABP for their debts. This effect causes a higher level of indebtedness (beyond optimal) and, therefore, well-being loss. Furthermore, we empirically test this theory for Chile, an emerging economy. We estimate a Tobit-Probit conditional mixed process (CMP) model, using data from the Central Bank of Chile’s Household Financial Survey (HFS). The results confirm the existence of a positive and significant effect of the use of ABP on the financial burden of households.