Household Debt and the Relative Deprivation of Consumption：Based on the Perspective of Housing Debt and Non-housing Debt

Abstract

The relative deprivation of consumption could directly reflect the real welfare differences among residents. As an important tool of smoothing intertemporal consumption decisions, debt can affect individual relative deprivation by improving the external consumption patterns of households. At present, the credit consumption growth rate of China’s household sectors is rising, and as for its structure, a remarkable feature is that personal housing loans gradually occupy the dominant position. Considering that there is a significant difference between housing debt and non-housing debt in terms of borrowing size, repayment period and consumption orientation, their impacts on the relative deprivation of consumption may also be different.Based on the above analysis, this paper uses the multi-year China Family Panel Studies（CFPS）data to discuss the relationship between household debt and the relative deprivation of consumption. Specifically, it aims to answer the following questions: （1）As for indebted households and debt-free households, which one has a generally higher level of the relative deprivation of consumption? （2）In terms of indebted households, how does the debt scale affect the relative deprivation of consumption? Is the relationship linear or nonlinear? （3）As for housing debt and non-housing debt, which one could relieve the relative deprivation of consumption? （4）What are the differences among the impact of debt on the relative deprivation of consumption by different groups?Based on the empirical analysis, we find that the average level of consumption relative deprivation of indebted households is significantly lower than that of non-indebted households, which means that indebtedness can alleviate the relative deprivation of consumption to some extent. Furthermore, in terms of indebted households, the empirical result suggests that there is a “U-shaped” nonlinear correlation between the scale of debt and the relative deprivation of consumption. After subdividing the debt category, we find that the scales of housing debt and non-housing debt have opposite effects on the relative deprivation of consumption. The former plays an aggravating role while the latter has a mitigating effect. But when non-housing debt reaches a certain level, it will aggravate the relative deprivation of consumption. In addition, the impact of debt on the relative deprivation of consumption varies across household characteristics and regional characteristics. Also, the two kinds of debt have a certain moderating effect on the relative deprivation of consumption, and they are more effective for the relative deprivation of development and enjoyment consumption.Our findings have important policy implications for the Chinese government. In order to further balancing the relationship between “consumption promotion” and “risk prevention”, reducing the relative deprivation of consumption, narrowing relative poverty, and improving national welfare, the government should coordinate as a whole and adopt the credit strategy of differentiation and “guarantee and pressure” for different households.Compared with previous studies, this paper pays attention to a more detailed perspective. It focuses on housing debt and non-housing debt, and the different effects of the two types of debt on the relative deprivation of consumption. In the meantime, this paper depicts the inequality of consumption by constructing the index of individual consumption relative deprivation, which not only helps us understand the level of residents’ well-being more clearly, but also fits the development goals of improving people’s well-being under the new development concept.