A Bigger House at the Cost of an Empty Fridge? The Effect of Households' Indebtedness on Their Consumption: Micro-Evidence Using Belgian HFCS Data

Philip Du Caju, Guillaume Périlleux, Francois Rycx and Ilan Tojerow

No 14193, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper investigates the potentially non-linear relation between households' indebtedness and their consumption between 2010 and 2014 in Belgium, using panel data from the two waves of the Household Finance and Consumption Survey. Unlike previous studies, we find a negative effect of households' indebtedness on their consumption, even in the absence of negative shock on their assets. Our findings suggest that, without such a shock, it is the day-to-day sustainability of the debt, rather than its overall sustainability, that leads households to reduce their consumption. We perform as well a threshold analysis, whose results suggest that households should not have a debt-service-to-income ratio greater than 30%. The effect appears to be robust to various specifications, to result from a trade-off between housing and consumption, and to be more prevalent among more fragile households.

Keywords: debt-service-to-income; consumption; indebtedness; households; non-linear heterogeneous effects (search for similar items in EconPapers)
JEL-codes: D12 D14 E21 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2021-03
New Economics Papers: this item is included in nep-mac and nep-ure
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Published - published as 'A Bigger House at the Cost of an Empty Stomach? The Effect of Households' Indebtedness on Their Consumption: Micro-Evidence Using Belgian HFCS Data' in: Review of Economics of the Household, 2023, 21, 291 - 333

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Related works:
Working Paper: A Bigger House at the Cost of an Empty Fridge? The Effect of Households' Indebtedness on Their Consumption: Micro-Evidence Using Belgian HFCS Data (2021)
Working Paper: A bigger house at the cost of an empty fridge? The effect of households’ indebtedness on their consumption:Micro-evidence using Belgian HFCS data (2021)
Working Paper: A Bigger House at the Cost of an Empty Fridge? The Effect of Households' Indebtedness on their Consumption: Micro-Evidence Using Belgian HFCS Data (2021)
Working Paper: A Bigger House at the Cost of an Empty Fridge? The Effect of Households' Indebtedness on Their Consumption: Micro-Evidence Using Belgian HFCS Data (2021)
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