Household finances, debt overhang and consumption patterns
Sala Lorda, Hector (Universitat Autònoma de Barcelona. Departament d'Economia Aplicada)
Trivín, Pedro (Università degli studi di Milano)

Date:	2024
Abstract:	This paper studies the effect of household debt on consumption throughout the business cycle. We use household-level data for Spain in a period, 2002-2017, characterized by significant fluctuations in leverage, consumption, and asset prices. We find that high levels of debt have a negative effect on consumption during recession periods, while previous debt accumulation does not significantly influence consumption. When considering heterogeneities across types of debt, we observe that households adjust their spending faster in response to debt not associated with real estate assets. By exploiting explicit information on household credit constraints, we find no evidence suggesting that they play a significant role in shaping the debt-consumption nexus. We conclude that in a situation of high leverage and financial stress, debt overhang decreases household consumption. In this context, policies aimed at preventing households from leveraging excessively during expansions, and policies providing debt relief during recessions, can help mitigate consumption shocks.
Grants:	Agencia Estatal de Investigación PID2022-136482OB-I00
Note:	Altres ajuts: acords transformatius de la UAB
Rights:	Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, la comunicació pública de l'obra i la creació d'obres derivades, fins i tot amb finalitats comercials, sempre i quan es reconegui l'autoria de l'obra original.
Language:	Anglès
Document:	Article ; recerca ; Versió publicada
Subject:	Consumption ; Household debt ; Debt overhang ; Spending normalization ; Survey
Published in:	Economic modelling, Vol. 139 (october 2024) , p. 106836, ISSN 1873-6122

DOI: 10.1016/j.econmod.2024.106836

12 p, 976.7 KB

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