Abstract
This study examines the effects of populism on household debt in 30 countries. Using a newly developed database of populist leaders, we observe that populism has a significantly negative effect on household debt, that is, households tend to hold less debt when populist leaders are in office than when non-populist ones are in office. We explore potential channels for this phenomenon. We observe that left-wing populism diminishes household debt by reducing household consumption while right-wing populism diminishes household debt by increasing public debt. Both types of populism decrease household debt by reducing lenders’ willingness to lend. Overall, our results suggest that populism is an important factor in explaining household debt dynamics.
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