Keeping Up With the Novaks? Income Distribution as a Determinant of Household Debt in CESEE

Mariya Hake,Philipp Poyntner

doi:10.1111/roiw.12540

Abstract

This paper constitutes an initial attempt to shed light on the role of income distribution for household debt in Central, Eastern, and Southeastern Europe (CESEE). Using household‐level data from the OeNB’s Euro Survey for the period 2008–2018, we address the question whether interpersonal comparisons (“Keeping up with the Novaks”) are associated with the probability of having a loan and planning to take out a loan. Applying multilevel probit modeling to consider the hierarchical structure of the data, our results support the notion that higher income inequality is negatively correlated with the probability of having a loan at the bottom of the distribution, and positively at the top. We show this impact for almost all components of household debt, but evidence is strongest for mortgage and foreign currency loans. Loan plans are associated with income inequality at the very top of the income distribution.

Highlights

The global financial crisis that started in 2008 has increasingly drawn attention to the importance of, and the threats arising from, household sector debt for macroeconomic stability and GDP growth
Using household-level data from the Oesterreichische Nationalbank (OeNB)’s Euro Survey for the period 2009-2018, we address the question whether interpersonal comparisons (“keeping up with the CESEE Joneses" i.e. "the Novaks”) affect the probability of having and planning a loan
"The goodness of fit" i.e intraclass correlation (ICC) varies between 1.4% and 3.8% showing that up to 3.8% of the variance is due to variation between levels (i.e regions) supporting the application of multilevel models

Summary

Introduction

The global financial crisis that started in 2008 has increasingly drawn attention to the importance of, and the threats arising from, household sector debt for macroeconomic stability and GDP growth. Policymakers and researchers alike have increasingly turned attention to the factors driving household indebtedness and whether the role of any of these have changed in conditions of high liquidity in the past years. Our analysis of this question for households in the countries of Central, Eastern and Southeastern Europe (CESEE) for the period 2009-2018 constitutes a comprehensive endeavour for this region to relate debt and income distribution (Hake and Poyntner 2019). The set of countries is an interesting case as levels of household debt there have remained below the levels experienced in other parts of the world (e.g USA, OECD, euro area countries), while our data show that income has been strongly unequally distributed in some of them with Gini coefficients close to 0.5

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Conclusion