Consumption; Debt-Service-to-Income; Households; Indebtedness; Non-linear Heterogeneous Effects; Social Sciences (miscellaneous); Economics and Econometrics
Abstract :
[en] This paper investigates the potentially non-linear relation between households’ indebtedness and their consumption. To do so, we use panel data from the two waves of the Belgian Household Finance and Consumption Survey. Unlike previous studies, we find a negative effect of households’ indebtedness on their consumption, even in the absence of any negative shock on their assets. Our findings suggest that, without such a shock, it is the day-to-day sustainability of the debt, rather than its overall sustainability, that leads households to reduce their consumption. The effect thus seems to occur through precautionary motives. To explore potential non-linearities in this effect, we perform a threshold analysis, whose results suggest that households should not have a debt-service-to-income ratio greater than 30% as this leads to a substantial reduction in their consumption. The effect appears to be robust to various specifications, including the inclusion of other European countries, to result from a trade-off between housing and consumption, and to be more prevalent among fragile households.
Disciplines :
Microeconomics
Author, co-author :
Du Caju, Philip; National Bank of Belgium, Brussels, Belgium
Perilleux, Guillaume ; Université libre de Bruxelles (SBS-EM: CEB and ECARES), Brussels, Belgium
Rycx, François; Université libre de Bruxelles (SBS-EM: CEB and DULBEA), IRES, humanOrg, GLO & IZA, Brussels, Belgium
Tojerow, Ilan; Université libre de Bruxelles (SBS-EM: CEB and DULBEA) & IZA, Brussels, Belgium
Language :
English
Title :
A bigger house at the cost of an empty stomach? The effect of households’ indebtedness on their consumption: micro-evidence using Belgian HFCS data
Note: The authors are indebted to the Eurosystem Household Finance and Consumption Network for providing rich and detailed data, as well as to Kim Oosterlinck, Paolo Surico, Audrey Bousselin, Natalia Fabra, Guillaume Chapelle, and participants in the internal Brown Bag Seminar organized at the Centre Emile Bernheim, in the Household Finance & Consumption Network Meeting (HFCN) held at the ECB, in the internal seminar of the National Bank of Belgium, and in the 7th Luxembourg Workshop on Household Finance and Consumption for fruitful discussions and useful comments. We acknowledge financial support from the National Bank of Belgium as well as the Fonds National de la Recherche Scientifique (FNRS). The opinions expressed here are those of the authors and do not necessarily represent those of the National Bank of Belgium or the European System of Central Banks. All errors and omissions remain the authors’ responsibility.
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