Abstract
One important aspect of the resulting indebtedness in full-fledged market economies is the mutual influence between different economic sectors. Therefore, alongside the government indebtedness, one must take into account also the debts of private agents, especially of households and non-financial corporations. In this paper our effort is concentrated on the household sector, especially the impacts on economic growth. We have gathered data for the time period 1995-2010 for the sample of 17 European OECD countries. The main descriptive statistics reveal high and still increasing indebtedness (ratio on the net disposable income) especially in Denmark, The Netherlands, Norway and Sweden and still low indebtedness in postsocialist countries. In panel regressions (fixed effects) we add loans as another explanatory variable into growth equation and examine the impacts on the growth rate of real GDP. The main result shows that a 10 percentage point increase in the ratio of household loans to the net disposable income is associated with about 30 basis point reduction in lagged economic growth. More profound looks give the study of both cross-specific and period-specific coefficients. Last but not least we have examined more homogenous panel of 13 countries putting aside 4 postsocialist countries.
Highlights
One of the hypotheses tested in the literature devoted to the development of debt is that private debt surges are recurrently antecedent to banking crises (Reinhart – Rogoff, 2010)
When the general government has to raise saving to stabilize debt at the macrolevel, it is helpful if private sectors can run down savings to offset the negative impact on economic growth
Alongside the government indebtedness, one must take into account the debts of private agents, especially households and nonfinancial corporations indebtedness
Summary
One of the hypotheses tested in the literature devoted to the development of debt is that private debt surges are recurrently antecedent to banking crises (Reinhart – Rogoff, 2010). The resulting indebtedness in full-fledged market economies has been exacerbated by the financial and economic crisis (De Grauwe, 2011; Gonzalez-Paramo, 2011) and this in turn is contributing to underlying financial instability in the general government and in private domestic sectors. The euro area has resulted in high levels of debt in the general government sector, and in the household and corporate sectors in many Member states (Blundell-Wignall, 2012, DellAriccia et al, 2012). This seems likely to happen regardless of the capacity of banks to give indebted households more credit. Alongside the government indebtedness, one must take into account the debts of private agents, especially households and nonfinancial corporations indebtedness.
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