Household Indebtedness Research Articles

Financialization, household debt and income inequality: Empirical evidence

AbstractThe aftermath of the most recent financial crisis has prompted a surge of interest in the impact of finance capitalism on national economies and individual livelihoods. Yet, research on the impact of financialization on income inequality, remains scant and inconclusive. Using data for 33 countries over 1996–2015, we provide evidence that of the three financialization dimensions ‐ of the financial, nonfinancial and household sectors ‐ only household financialization exerts a positive and robustly significant impact on income inequality. Re‐estimations by system generalized‐methods‐of‐moments (SYS‐GMM) and difference‐GMM as well as alternative income inequality measures, confirm the significant, positive impact of household indebtedness over all other financialization dimensions. Following disaggregation of household financialization into its three main components (mortgage, consumer and other purposes debt), we also uncover that it is increasing levels of household debt aimed at sustaining living standards that is accountable for the positive impact on income inequality, whilst mortgage debt reduces it.

Monitorowanie ryzyka na rynku nieruchomości mieszkalnych w Polsce

This paper applies a framework for monitoring vulnerabilities in the residential real estate sector to the case of Poland. The framework considers indicators across three dimensions of real estate-related vulnerabilities, i.e. valuation, household indebtedness and the bank credit cycle, and builds a composite model-free measure shown to have a significant forecasting performance for real estate crises. The paper shows how the monitoring can be implemented for the Polish market, discusses the developments from a historical perspective, and highlights remaining data gaps.

Incidence and Determinants of Indebtedness of Agricultural Households in Gujarat

Incidence and Determinants of Indebtedness of Agricultural Households in Gujarat

Growth of Rural Indebtedness in Punjab

The problem of indebtedness among the rural households of Punjab was become more serious in the last two decades. A large number of studies were carried out in India and abroad to look into the problem of rural indebtedness and its consequences but most of these studies are either based upon a very small sample of a few districts or cover the farmers only. The present study would be wider in scope as it was also included artisans, agricultural labourers (non- cultivators) along with the farmers (cultivators). This study analysed the situation of Punjab as a whole and district wise analysis was done. Therefore, in the present study, an attempt was made to analyse the growth of indebtedness among the rural households in Punjab and attempt was made to explain the utilisation pattern of loan used by rural households and tried to trace out how the situation of household indebtedness in the Punjab evolved and changed over the course of about ten years. The study will be helpful to planners, academicians, researchers as well as policymakers for solving the problem of indebtedness among rural households for the betterment of the society as a whole. It is suggested that encouragement should be given to subsidiary occupations, improvement in access to health at subsidised rate in rural areas to curb the indebtedness and to monitor the informal mechanism of credit by Government and financial institutions along with availability of the appropriate delivery of credit into the agricultural as well as non-agricultural sector of rural areas by eliminating costly sources of money lenders for the accurate functioning of the economy.

House Price Shocks, Credit Constraints and Household Indebtedness

AbstractWe analyse the effect of housing wealth on household indebtedness in a life-cycle framework. Exploiting longitudinal household data and temporal and geographic variation in house prices, our empirical results indicate that households respond to increases in housing wealth by significantly increasing their debt. The effect is strongest for households that are moderately leveraged, highlighting the importance of collateral constraints. Furthermore, we uncover a weaker wealth effect from house price growth for households that have faced negative shocks to income or employment. Importantly, our findings are consistent with the theoretical predictions of the life-cycle model: households increase their mortgage debt, but not their unsecured credit card debt. A novel finding is that we uncover a moderate positive wealth effect on investment loans.

Are Housing Wealth Effects Asymmetric in Booms and Busts?

This paper investigates the effects of household indebtedness and housing wealth on consumption. To identify exogenous movements of housing wealth and leverage, we estimate housing supply elasticities for New Zealand urban centers. We construct synthetic panel series by using household survey data to estimate the marginal propensity to consume out of exogenous changes in housing wealth, while controlling for the household leverage ratio. Our empirical results show that, on average, the marginal propensity to consume out of housing wealth is about 3 cents out of one dollar. But it is larger, about 4 cents, in response to falling house wealth than to increasing housing wealth, about 2 cents. We further investigate the role of household indebtedness in accounting for the asymmetric effect. Our findings suggest that household leverage reinforces the housing wealth effect in a housing bust, but dampens the housing wealth effect in a boom.

It takes two to tango: mortgage markets, labor markets and rising household debt in Europe

Household mortgage debt unleashed devastating consequences for the global economy in 2007–2008. Despite the growing importance of household debt in financial markets, international political economy and comparative political economy have not theorized why it varies so much across Europe. We argue that variation in household debt can be explained by the intersection of two domestic institutions: labor market institutions (and by extension the welfare state) that enable households to withstand negative employment/income shocks, and mortgage finance institutions that govern households’ credit access. We empirically demonstrate via a panel analysis of 17 advanced capitalist democracies that the impact of these institutions on household debt is co-dependent. Strong collective bargaining institutions (and generous welfare states), which protect borrowers from income and employment insecurity, are associated with higher household indebtedness, but only if housing finance institutions that encourage mortgage lending are present (i.e. in Scandinavia and the Netherlands). In contrast, liberal (financialized) economies have comparatively lower household indebtedness because their labor market institutions inhibit income security for borrowers. As household debt becomes more central to comparative political economy, our findings suggest that scholars who study financialization need to integrate labor market (and welfare state) institutions into their analysis to understand how domestic financial systems function.

Financial Insecurity in a World of Plenty

The U.S. economy is addicted to the simulative impacts of household borrowing. Household debt has grown dramatically since the 1990s and has served to mitigate the detrimental effects of stagnant household wages. The accumulation of this debt has also had the macroeconomic impact of stimulating the economy, pushing it closer towards full employment. However does full employment stimulated by household indebtedness actually represent economic progress? It is argued that even the poorest citizen in a modern industrialized society is better off than a king of feudal Europe, yet in the United States such material prosperity is often tied to social insecurity thanks to debt. The growth of this debt has been enabled by a financial system that has evolved dramatically over the past forty years. The U.S. financial system’s primary role is no longer to finance investment but is rather a tool that enables a separation of ownership from use. Debt has fueled corporate profits which have enriched the shareholding class while at the same time the system has reduced the financial security of the majority of workers. This article crystalizes these issues by analyzing the differentials in financial circumstances faced by workers and shareholders in several major U.S. firms.

Income Distribution, Household Debt and Growth in Modern Financialized Economies

:We analyze some core features of the institutional transformation of the Canadian and U.S. economies over the last half century, as they became increasingly financialized economies resting on household consumption as the key contributor to economic growth, despite weak growth in real wages and personal disposable income. This growth in consumption spending is highly fragile not only because it is a debt-led growth that has relied on an unsustainable expansion of household indebtedness largely dependent on credit bubbles in the housing market, but also because of the perverse form of this indebtedness. Studied from the angle of disaggregated household consumption/saving behavior, it is the poorest and most vulnerable households who have been building up unsustainable debt, thereby presaging increasing financial fragility and crises.

Household Debt and Delinquency over the Life Cycle

This paper uses loan-level data from Thailand's National Credit Bureau to study household debt over the life cycle of borrowers. We decompose two aggregate and commonly used measures of debt—debt per capita and delinquency rate—into components that unveil the extensive and intensive margins of household indebtedness. We find a striking inverted-U life-cycle pattern of indebtedness as predicted by economic theories. However, peaks are reached at different ages for different loan products and different lenders. We also find that debt has expanded over time for all age groups. Younger cohorts seem to originate debt earlier in their lives than older generations. Meanwhile, older borrowers remain indebted well past their retirement age. Finally, we find a downward pattern of delinquency over the life cycle. Our findings have important policy implications on financial access and distress of households as well as on economic development and financial stability of the economy.

Financial landscapes of agrarian change in Cambodia

In the context of neoliberal financialization, what is the role of debt in agrarian change? To address this question, I combine insights about debt from rural political ecology and development finance scholarship in order to analyze the relationship between changing agroecological practices and household indebtedness in a Cambodian rice- farming village. In the past two decades, Cambodians have borrowed from commercial microfinance institutions at the highest rate per capita of any country in the world. With fewer Cambodians farming, and agricultural production increasingly commodified, researchers have begun to study how the fast growth of Cambodia's microfinance industry contributes to these changes. By building upon the concept of financial landscapes, which highlights the diversity of social and material relations of debt in rural economies, I argue that agrarian change in Cambodia is entangled with rising household debts used to fund both agricultural production and social reproduction. I describe how non-monetary debt obligations underpinned labor-intensive rice agricultural practices in the 1980s and early 1990s, but have since been replaced by monetary debt used to fund household basic needs and commodified agricultural production. To make my argument, I draw upon 20 months of ethnographic research within a farming village in Kampot Province. This article contributes to rural political ecology and development finance scholarship by exploring debt in its diverse material and social forms at a time of deepening financialization, and how these debt relations in turn shape the economic and agroecological contours of contemporary agrarian change.

Breaking the Perverse Health-debt Cycle in Sri Lanka: Policy Options

This paper proposes a finite mixture model to examine how health adversities influence indebtedness of Sri Lankan households. After accounting for unobserved heterogeneity, our empirical analysis reveals that households headed by ill-health members and those with hospitalization are inevitably more vulnerable to indebtedness. The ill-health status of other working-age members also creates milder effects on household indebtedness. We confirm that the health-debt cycle is more severe for urban households, compared to their rural counterparts. The study is testimony to re-emphasizing the role of government in providing much-needed financial protection to vulnerable households and implementing differentiated-policy packages for urban and rural sectors in order to effectively break the health-debt cycle.

FARMER’S DISTRESS AND AGRARIAN CRISES IN INDIA: CAUSES AND WAYS FORWARD

Agriculture in India is referred to as “Gamble of the monsoon”. It has been observed that among Indian states. In recent years, many farmers in India have committed suicide, Uttar Pradesh, Maharashtra, Rajasthan and Karnataka record for high suicide rates due to indebtedness of agricultural households. Maharashtra accounted for the maximum share of farmer suicides and Karnataka second. Cultivators are more prone to commit suicide compared to that of Agricultural Labourers. The study found that the high poverty states have the highest farmers committing suicide. Among the cultivators, bankruptcy or indebtedness are the major factors leading to purposive killing of farmers killing themselves. The study is based on secondary data. The data such as number of cultivators, agricultural labourers by age, gender and size of landholdings have been collected and been used for further analysis. Indian States are categorized into low, middle and High Poverty states based on ‘combined poverty line’ estimated by Suresh Tendulkar. Also the farmers are divided into four groups according to size of landholdings (marginal, small, medium and large farmers) for clear analysis. Simple statistical tools such as averages, Coefficient of Variation and percentage are used to analyze and interpret the data. Out of 39.8 percent of total working population in India 21.7 percent of population are engaged in agricultural activities and are in distress and committing suicide which triggers a major loss to India’s Human Capital resource. The study also shows that high rates of suicide are recorded in Maharashtra (34.1 percent) and Karnataka (12.5 percent) and therefore farmers’ suicide is high among the high poverty states of India. KEY WORDS: Agriculture, Farmers, Cultivators, agricultural Labourers, Suicide, Bankruptcy, High and Low Poverty States, Factors.

Canada

This paper on Financial Safety Net and Crisis Management for the Canada reviews the stress testing and financial stability analysis. The paper highlights that the financial system’s performance has been strong. The insurance sector has remained financially sound even in the low interest rate environment. Major banks, life insurers, and pension funds have expanded their footprints abroad. Canada has strong financial linkages with the United States. Macrofinancial vulnerabilities—notably, elevated household indebtedness and housing market imbalances—remain substantial, posing financial stability concerns. Major deposit-taking institutions would be able to manage severe macrofinancial shocks; however, mortgage insurers would probably need additional capital. Major deposit-taking institutions also hold enough liquidity buffers to withstand sizeable funding outflows. However, increased balance sheet complexity and reliance on wholesale and foreign exchange funding, and the extensive use of derivatives are some areas of concern that would warrant closer monitoring by the competent authorities and a more comprehensive quality assurance in the context of supervisory or macroprudential stress testing exercise.

The Political Economy of Housing Financialization in Turkey: Links With and Contradictions to the Accumulation Model

ABSTRACT Financialization influenced the Turkish economy and housing industry mostly through financial liberalization moves and soaring capital inflows. It both increased household liabilities and mortgage loans dramatically and offered various facilities for the housing industry. Relevant legal regulations not only helped the Turkish housing industry prosper but also eased its integration into the national and global financial system. In addition, political implications constituted a strong motivation for governments to attach special importance to the housing industry. I examine housing financialization as an integral part of the accumulation model of the Turkish economy and argue that the housing industry lies at the very heart of the contradictions of this model. The large-scale capital inflows both intensified the dependency on foreign resources and increased the role of the domestic demand. This is the main contradiction of the accumulation model; it manifests itself in the interest rate dilemma and is also critical for housing financialization in Turkey because the characteristics of this model are especially valid for the housing industry. Moreover, not only do the contradictions of the accumulation model disrupt the housing industry, but also the characteristics of the housing industry contribute to the disruption of this model.

Household Consumption, Household Indebtedness, and Inequality in Turkey: A Microeconometric Analysis

This paper examines whether relative income and income inequality within reference groups affect household consumption. Using the explanations of consumption behavior based on Dusenberry’s relative income hypothesis, we test if household consumption levels in Turkey are affected by the household’s relative position and inequality in the reference group between 2005–12 by employing cross-sectional household-level data. We find that household consumption is negatively related to the relative income indicator after controlling for absolute income, and positively related to the income inequality of the reference group, as the literature suggests. The paper also shows that household indebtedness has a positive impact on household consumption when inequality in the reference group and the relative position of households are controlled for. We confirm that the results are not sensitive to chosen relative income indicators and income inequality.

House Prices, Mortgage Debt Dynamics and Economic Fluctuations in France: A Semi-Structural Approach

We develop a model of house prices and household indebtedness and include it in the Banque de France's semi-structural macroeconomic model in order to analyse the implications of mortgage debt dynamics on economic fluctuations and financial stability in France. Our results show that accounting for household financial vulnerability in the distribution of loans is key to prevent large credit and house price fluctuations from reinforcing each other in the long term. Moreover, our model shows that measures constraining the indebtedness of households (regarding the maturity of loans or borrower-based caps) helps reducing short- to medium-term financial instability dynamics.

Structural and Value Dimensions of Household Indebtedness in Bulgaria

The assertion that household indebtedness is directly related to financial macrostability is considered an axiomatic rule in economic theory. The presence of a high level of indebtedness and sharp increases in its values are considered by experts as an indicator of an impending financial crisis and recession. The study of the dynamics and trends in household debt liabilities changes could answer many questions related to households’ financial stability and the measures that regulators should take. This research issue is particularly relevant in the current economic crisis caused by the global Covid-19 pandemic. The analysis of the structural and value dimensions of household indebtedness provides the necessary basis for studying the financial sustainability of households, with which they enter this challenging period.

Indebtedness and Spending: What Happens When the Music Stops?

We analyse the effect of shocks to housing wealth and income before and after the Great Recession. We combine datasets containing information on expenditure, income, wealth and debt in a synthetic panel to understand how household indebtedness affects the response to income and wealth shocks. We find evidence for both a housing wealth effect and income shocks depressing household consumption during the crisis in Ireland. The long recovery of consumption is also related to high levels of indebtedness at the onset of the crisis. Households who entered the crisis with more debt are significantly more sensitive to changes in their income. In this way, household balance sheets can be an important amplification mechanism for aggregate shocks. JEL Classification: D14, D31, E21, H31

Unsustainable Household Debt: Problems of Measurement

Summary: In the wake of the Global Financial Crisis, a significant research effort has been made to better understand the links between household debt levels, financial stability risks, and the ongoing implications of the ‘debt overhang’ for economic growth. However, accurately measuring the household debt burden remains problematic. Aggregate measures of household indebtedness (e. g. household liabilities relative to income) fail to fully capture the debt servicing burdens of households, particularly in periods when real incomes are declining (as has been the case in the UK in recent years). They also provide no insight into the distribution of debt burdens, which may be important for both future financial stability and economic growth. We attempt to address this problem by combining a new analysis of aggregate data with insights gleaned from household debt surveys. We first construct a new measure of debt interest payments as a percentage of the overall household surplus from the aggregate data. This indicates a significant increase in household debt burdens between 2016 and 2018. We test the validity of this measure by analysing household debt surveys over the period, and report on the most affected households. The findings support a case for a lowering of the thresholds used in official measures of financial vulnerability and over-indebtedness and for greater impetus in policymaking to relieve the financial pressures of households in debt.