Abstract
This article contributes to the debate on deleveraging in the non-financial private sector. It proposes a framework to assess the interconnectedness of deleveraging in the household sector and in the nonfinancial corporations sector. In doing so, several factors are controlled for: inflation, interest rates, labour intensity and also the influence of the general government debt (neo-ricardian effects). Panel regressions are performed on a set of OECD countries, between 1981 and 2013, to cover several crisis episodes, including the latest one. Instrumental regressions are used, with different instruments. Findings show robust results of mutual and positive influence between households and non-financial corporations' debts developments. It is also found that, in cases where the labour share of GDP is higher, deleveraging by non-financial corporations will take a heavier toll on deleveraging by households. This can be explained by an enhanced functioning of the income channel: corporations squeeze the wage bill in order to restore their profitability. Conversely, among other channels, household deleveraging affects their propensity to consume, which in turn affects corporations profitability that become more incited to deleverage.
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