The impact of income inequality on household indebtedness in euro area countries

Abstract

This paper explores the impact of income inequality on household indebtedness at the household level. Using the first wave of the Eurosystem Household Finance and Consumption Survey data, the analysis sheds light on heterogeneous effects across euro area countries. The results suggest that there is weak evidence that income inequality has affected households’ indebtedness in continental European countries. The countries that show an impact are characterised by positive effects that operate across the income distribution and tend to be robust for consumption-related and housing-related debts. The effects, however, vary much less across the distribution for consumption-related debts as compared to housing-related debts. Households at the top of the income distribution seem to react more than lower-income households when it comes to housing-related debts.