Fuest, Clemens (2009) Household debt repayment behaviour: what role do institutions play? Discussion. Economic Policy, 24 (57). pp. 108-140.
Despite the lively policy debate on rising household debt, arrears and personal bankruptcy filings, there is elatively little empirical evidence on the determinants of households’ debt repayment behaviour, or on the incidence of arrears. Even less is known about how arrears compare between countries, although debt levels are known to vary widely. Using data from the European Community Household Panel, we first show that arrears are frequently associated with subsequent adverse consequences, such as future unemployment or bad health. Second, we find that arrears are often precipitated by an adverse shock to the household’s income or health, but that there are large differences between countries in how households react to
these events. Finally, we show that these differences can be partly explained by local financial and judicial institutions, as captured by contract enforcement and
information sharing indicators. In other words, we show that while adverse shocks are highly important, the extent to which they affect repayment behaviour depends crucially on the penalty for defaulting. This finding suggests that although repayment problems often arise from a genuine inability to repay, some households seem to behave strategically.
|Centre:||Oxford University Centre for Business Taxation|
|Date Deposited:||29 May 2012 10:25|
|Last Modified:||23 Oct 2015 14:07|
Actions (login required)