Skip to main content
SpringerLink
Log in

Household Debt in OECD Countries: The Role of Supply-Side and Demand-Side Factors

  • Published:
Social Indicators Research Aims and scope Submit manuscript

Abstract

In many countries, household debt increased from the 1990s until the global financial crisis of 2007–2008 and then stagnated with the Great Recession, the euro-area sovereign debt crisis and deleveraging. In spite of these common trends, differences in national household debt/disposable income ratios are evident. This paper studies the determinants of household debt using a dataset of 33 countries and taking into account both demand-side and supply-side factors. The econometric exercises, covering the period 1995–2016, yield the following results. First, there is a positive link between household debt and both household wealth and house price growth. Second, the quality of bankruptcy laws relates positively to household debt, whereas longer insolvency resolution times are associated with lower household debt. Third, Anglo-Saxon legal origin and Scandinavian legal origin have a stronger link with household debt than French and German legal origin. Fourth, household debt is higher in countries with social-democratic and liberal welfare models than in conservative and Eastern European welfare states. Fifth, the ratio of public debt to GDP displays a negative association with private debt. Last, the effect of saving on household debt is significant only in the years of household deleveraging, i.e. after the global financial crisis. While the effect of demand-side variables is unstable over time, supply-side variables appear to be more persistent in determining the level of household debt.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Source: Eurostat and OECD. Bulgaria: 2000–2016; Croatia: 2002–2012; Hungary: 1995–2015; Ireland: 2001–2016; Latvia: 1996–2016; Luxembourg: 2002–2016; New Zealand: 1998–2014; Poland: 2003–2016; Romania: 1998–2015; Slovenia: 2001–2016; Spain: 1999–2016

Fig. 2

Source: Eurostat and OECD

Similar content being viewed by others

Notes

  1. A very incomplete list of the narrative of household debt in the different countries includes Barnes and Young (2003), Brown et al. (2013), Dynan and Kohn (2007), Kennickell (2012) and Schularick and Wachtel (2014) on the US; Crawford and Faruqui (2012) on Canada; JP Morgan (2013) on Spain; Hunt (2015) on New Zealand; Emanuelsson et al. (2015) on Sweden; and Magri and Pico (2012) on Italy.

  2. Yay and Aksoy (2018) claim that welfare state regimes have reacted differently to globalization.

  3. Religious, cultural and social norms may also influence individual attitudes to debt (Guiso et al. 2003). On household debt determinants see also the survey by Zinman (2015).

  4. For real assets our sample includes all countries except Bulgaria, Croatia, Ireland, New Zealand and Romania.

  5. We were not able to use homeownership rates as an independent variable as long time series are not available. International organisations publish these rates for some countries and only for a few years (ECB 2003, 2013; OECD 2011). Therefore, we could only run a regression with a very low number of observations.

References

  • Ansell, B. W. (2014). The political economy of ownership: Housing markets and the welfare state. American Political Science Review, 108(2), 383–402.

    Article  Google Scholar 

  • Arslanalp, S., De Bock, R., & Jones, M. (2015). Trends and prospects for private-sector deleveraging in advanced economies. Vox.eu, June.

  • Bank for International Settlements. (2014). Integrated management of micro-databases. In Proceedings of the Porto workshop, IFC bulletin no. 37, January.

  • Bank of England. (2003). Mortgage equity withdrawal and household consumption. Inflation report, November.

  • Barnes, S., & Young, G. (2003). The rise in the US household debt: Assessing its causes and sustainability. Bank of England, Working Papers, No. 206.

  • Barrot, J., Loualiche, E., Plosser, M., & Sauvagnat, J. (2017). Import competition and household debt, mimeo.

  • Bassanetti, A., Rondinelli, C., & Scoccianti, F. (2012). The Italian saving rate: Vanishing? Bank of Italy, mimeo.

  • Becker, B., & Ivashina, V. (2018). Financial repression in the European sovereign debt crisis. Review of Finance, 22, 83–115.

    Article  Google Scholar 

  • Berisha, E., Meszaros, J., & Olson, E. (2017). Income inequality, equities, household debt, and interest rates: Evidence from a century of data. Journal of International Money and Finance, 80, 1–14.

    Article  Google Scholar 

  • Bertola, G., & Hochguertel, S. (2007). Household debt and credit: Economic issues and data problems. Economic Notes, 36(2), 115–146.

    Article  Google Scholar 

  • Bianchi, J., & Mendoza, E. G. (2010). Overborrowing, financial crises and ‘macro-prudential’ taxes. NBER Working Papers, No. 16091, June.

  • Bouis, R. (2015). Household deleveraging and saving rates: A cross-country analysis. International Monetary Fund, February.

  • Brandolini, A., Magri, S., & Smeeding, T. M. (2010). Asset-based measurement of poverty. Journal of Policy Analysis and Management, 29(2), 267–284.

    Article  Google Scholar 

  • Brown, M., Haughwout, A., Lee, D., & van der Klaauw, W. (2013). The financial crisis at the kitchen table: Trends in household debt and credit. Federal Reserve Bank of New York. Current Issues in Economics and Finance, 19(2), 1–9.

    Google Scholar 

  • Casolaro, L., Gambacorta, L., & Guiso, L. (2005). Regulation, formal and informal enforcement and the development of the household loan market. Lessons from Italy. Bank of Italy, Working Papers, No. 560, September.

  • Cecchetti, S. G., & Kharroubi, E. (2012). Reassessing the impact of finance on growth. BIS Working Papers, No. 381, July.

  • Christelis, D., Ehrmann, M., & Georgarakos, D. (2015). Exploring differences in household debt across euro area countries and the United States. Bank of Canada, Working Paper, No. 16, May.

  • Crawford, A., & Faruqui, U. (2012). What explains trends in household debt in Canada? (pp. 3–15). Bank of Canada Review, Winter, 3-15 .

    Google Scholar 

  • D’Alessio, G., & Iezzi, S. (2013). Household over-indebtedness: Definition and measurement with Italian data. Bank of Italy, Occasional Papers, No. 149, February.

  • Davidsson, L. E., & Hvalgren, N. (2017). Income inequality and household debt. Uppsala Universitet, Department of Economics, Bachelor’s Thesis.

  • Davies, J. B., Sandstrom, S., Shorrocks, A., & Wolff, E. (2010). The level and distribution of global household wealth. The Economic Journal, 121, 223–254.

    Article  Google Scholar 

  • De Bonis, R., & Stacchini, M. (2013). Does government debt affect bank credit? International Finance, 16(3), 289–310.

    Article  Google Scholar 

  • de Serres, A., & Pelgrin, F. (2003). The decline in private saving rates in the 1990s in OECD countries: How much can be explained by non-wealth determinants? OECD Economic Studies, No. 36.

  • Debelle, G. (2004). Macroeconomic implications of rising household debt. BIS Working Papers, No. 153, June.

  • Demirguc-Kunt, A., & Levine, R. (2001). Financial structure and economic growth. A cross-country comparison of banks, markets, and development. New York: MIT Press.

    Book  Google Scholar 

  • Djankov, S., Glaeser, E., La Porta, L., Lopez-De-Silanes, R., & Shleifer, A. (2003). The new comparative economics. Journal of Comparative Economics, 31, 595–619.

    Article  Google Scholar 

  • Djankov, S., McLiesh, C., & Shleifer, A. (2007). Private credit in 129 countries. Journal of Financial Economics, 84(2), 299–329.

    Article  Google Scholar 

  • Dynan, K. E., & Kohn, D. L. (2007). The rise in U.S. household indebtedness: Causes and consequences. Federal Reserve Board, Working Paper, No. 37.

  • Ebbinghaus, B. (2012). Comparing welfare state regimes: Are typologies an ideal or realistic strategy? Draft Paper presented at European Social Policy Analysis Network ESPAnet Conference, Edinburgh, UK, September 6–8.

  • Emanuelsson, R., Melander, O., & Molin, J. (2015). Financial risks in the household sector. Sveriges Riksbank, Economic Commentaries, No. 6.

  • Esping-Andersen, G. (1990). The three worlds of welfare capitalism. Princeton University Press.

    Google Scholar 

  • European Central Bank. (2003). Structural factors in the EU housing markets. March.

  • European Central Bank. (2013). The Eurosystem household finance and consumption survey. Results from the first wave. Statistics Paper Series, No. 2, April.

  • European Commission. (2008). Towards a common operational European definition of over-indebtedness, Brussels.

  • European Commission. (2009). Report of the expert group on credit histories. DG internal market and services, May.

  • European Commission. (2011). Scoreboard for the surveillance of macroeconomic imbalances: Envisaged initial design. Commission staff working paper, November.

  • European Commission. (2012). Report from the commission. Alert mechanism report, February.

  • Geneva Reports on the World Economy (2014). Deleveraging? What deleveraging? by Buttiglione, L., Lane, P., Reichlin, L., & Reinhart, V., No. 16.

  • Gerba, E., & Schelkle, W. (2014). Household finance and the welfare state: A case study of the United States, 1980–2010. London School of Economics Research Online.

  • Greene, W. H. (2002). Econometric analysis. New York: Macmillan.

    Google Scholar 

  • Greenspan, A. (2005). Mortgage banking. Talk given at the American Economic Association Annual Convention, Palm Desert, California, September 26.

  • Greenspan, A., & Kennedy, J. (2007). Sources and uses of equity extracted from homes. Federal Reserve Board, Finance and Economics Discussion Series, No. 20.

  • Guiso, L., Jappelli, T., & Terlizzese, D. (1992). Saving and capital market imperfections: The Italian experience. Scandinavian Journal of Economics, 94(2), 197–213.

    Article  Google Scholar 

  • Guiso, L., Sapienza, P., & Zingales, L. (2003). People’s opium? Religion and economic attitudes. Journal of Monetary Economics, 50, 225–282.

    Article  Google Scholar 

  • Hunt, C. (2014). Household debt: A cross-country perspective. Reserve Bank of New Zealand Bulletin, 77(4), 1–13.

    Google Scholar 

  • Hunt, C. (2015). Economic implications of high and rising household indebtedness. Reserve Bank of New Zealand Bulletin, 78(1), 1–13.

    Google Scholar 

  • IMF. (2012a). Dealing with household debt. World Economic Outlook, Chapter 3, April.

  • IMF. (2012b). The good, the bad and the ugly: 100 years of dealing with public debt overhangs. World Economic Outlook, Chapter 3, October.

  • Isaksen, J., Kramp, P. L., Sorensen, L. F., & Sorensen, S. V. (2011). Household balance sheets and debt—An international country study. Danmarks Nationalbank, Monetary Review, 4th Quarter, Part 2, 39–81.

    Google Scholar 

  • Jappelli, T., Pagano, M., & Di Maggio, M. (2013). Households’ indebtedness and financial fragility. Journal of Financial Management Markets and Institutions, 1(1), 23–46.

    Google Scholar 

  • Jarmuzek, M., & Rozenov, R. (2017). Excessive private sector leverage and its drivers: Evidence from advanced economies. IMF Working Paper, No. 17/72, March.

  • Jeanne, O., & Korinek, A. (2010). Managing credit booms and busts: A Pigouvian taxation approach, mimeo.

  • JP Morgan. (2013). Spanish households’ journey to balance sheet repair. Economic Research Global Data Watch, April 12.

  • Kennickell, A. (2012). Slipping and sliding: Wealth of U.S. households over the financial crisis. Paper presented at “Macroeconomics after the (financial) flood: Conference in memory of Albert Ando”, Bank of Italy, December.

  • Kim, H. J., Lee, D., Son, J. C., & Son, M. K. (2014). Household indebtedness in Korea: Its causes and sustainability. Japan and the World Economy, 29, 59–76.

    Article  Google Scholar 

  • King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. Quarterly Journal of Economics, 108, 717–737.

    Article  Google Scholar 

  • Koo, R. (2011). The world in balance sheet recession: Causes, cure and politics. Real-World Economics Review, 58, 9–37.

    Google Scholar 

  • Koo, R. (2012). Balance sheet recessions and the global economic crisis. Nomura Research Institute, mimeo, October.

  • La Porta, R., Lopez-De-Silanes, F., Shleifer, A., & Vishny, R. W. (1997). Legal determinants of external finance. Journal of Finance, 52(3), 1131–1150.

    Article  Google Scholar 

  • Lai, F., Chan, S. N., Shum, W. Y., & Zhou, N. (2017). Household debt and housing prices: An empirical study across 36 countries. International Journal of Business and Management, 12(11), 227–241.

    Article  Google Scholar 

  • Levine, R. (2005). Finance and growth: Theory and evidence. In P. Aghion & S. N. Durlauf (Eds.), Handbook of economic growth—volume 1, part 2 (pp. 865–934). Amsterdam: Elsevier.

    Google Scholar 

  • Liu, Y., & Rosenberg, C. B. (2013). Dealing with private debt distress in the wake of the European financial crisis. IMF Working Paper, No. 13/44, February.

  • L’Observatoire du Crédit et de l’Endettement. (2011). Regional and local treatment, prevention and assessment of over-indebtedness. In Proceedings of the conference held at Namur, 30 September–1 October 2010.

  • Lombardi, M., Mohanty, M., & Shim, I. (2017). The real effects of household debt in the short and long run. BIS Working Paper, No. 607, January.

  • Lusardi, A. M., Skinner, J., & Venti, S. (2001). Saving puzzles and saving policies in the United States. NBER working paper, no. 8237, April.

  • Magri, S., & Pico, R. (2012). Italian household debt after the 2008 crisis. Bank of Italy, Occasional Papers, No. 134, September.

  • Meng, S., Hoang, N. T., & Siriwardana, M. (2013). The determinants of Australian household debt: A macro-level study. Journal of Asian Economics, 29, 80–90.

    Article  Google Scholar 

  • Mian, A., & Sufi, A. (2014). House of debt. The University of Chicago Press Books.

    Book  Google Scholar 

  • Mian, A., Sufi, A., & Verner, E. (2017). Household debt and business cycles worldwide. Quarterly Journal of Economics, 132(4), 1755–1817.

    Article  Google Scholar 

  • Mishkin, F. S. (2017). Improving the use of discretion in monetary policy. Mimeo.

  • Modigliani, F. (1986). Life cycle, individual thrift, and the wealth of nations. American Economic Review, 76(2), 297–313.

    Google Scholar 

  • Naceur, S. B., Blotevogel, R., Fischer, M., & Shi, H. (2017). Financial development and source of growth. IMF Working Paper, No. 143, June.

  • North, D. C. (1990). Institutions, institutional change, and economic performance. Cambridge University Press.

  • OECD. (2011). The evolution of homeownership rates in selected OECD countries: Demographic and public policy influences. OECD Journal: Economic Studies, 2011(1), 1–37.

    Google Scholar 

  • OECD. (2012). Debt and macroeconomic stability. OECD Economics Department Policy Notes, No. 16, January 2013.

  • Pagano, M. (2013). Finance: Economic lifeblood or toxin? EIEF Working Paper, No. 09/13, April.

  • Palumbo, M. G., & Parker, J. A. (2009). The integrated financial and real system of national accounts for the United States: Does it presage the financial crisis? American Economic Review: Papers and Proceedings, 99(2), 80–86.

    Article  Google Scholar 

  • Richter, B., Schularick, M., & Wachtel, P. (2017). When to lean against the wind. CEPR Discussion Paper Series, No. 12188, July.

  • Schularick, M., & Wachtel, P. (2014). The making of America’s imbalances. CESifo Economic Studies, 60(1), 62–88.

    Article  Google Scholar 

  • Schwartz, H. (2012). Housing, the welfare state, and the global financial crisis: What is the connection? Politics & Society, 40(1), 35–58.

    Article  Google Scholar 

  • Shleifer, A. (2008). Legal foundations of corporate governance and market regulation. Bank of Italy Baffi Lecture, December.

  • The Economist. (2015). Ending the debt addiction. A senseless subsidy, May 16.

  • Turk, R. A. (2015). Housing price and household debt interactions in Sweden. IMF Working Paper, No. 276, December.

  • Watchel, P. (2017). Credit deepening: Precursor to growth or crisis? Revue d’Economie Financiere, May, 1–9.

  • World Bank. (2018). Doing business 2018—reforming to create jobs.

  • Yay, G. G., & Aksoy, T. (2018). Globalization and the welfare state. Quality & Quantity, 52, 1015–1040.

    Article  Google Scholar 

  • Zabai, A. (2017). Household debt: Recent developments and challenges. BIS Quarterly Review, December, 39–54.

  • Zinman, J. (2015). Household debt: Facts, puzzles, theories, and policies. Annual Review of Economics, 7, 251–276.

    Article  Google Scholar 

  • Zinni, M. B. (2013). Essays in household financial balance sheets. Ph.D. Thesis, Tor Vergata University.

Download references

Acknowledgements

We thank three anonymous referees for very useful insights. We also thank Massimiliano Affinito, Andrea Brandolini, Luigi Cannari, Claire Giordano, Luigi Infante, Marco Marinucci, Andrea Mercatanti, and participants at seminars held at the European Central Bank, the 21st Input–Output Conference, the OECD and the Bank of Italy for suggestions on an earlier version. The usual disclaimer applies.

Author information

Authors and Affiliations

  1. Bank of Italy, DG Economics, Statistics and Research, Rome, Italy

    Massimo Coletta, Riccardo De Bonis & Stefano Piermattei

Authors
  1. Massimo Coletta
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Riccardo De Bonis
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Stefano Piermattei
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Riccardo De Bonis.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Coletta, M., De Bonis, R. & Piermattei, S. Household Debt in OECD Countries: The Role of Supply-Side and Demand-Side Factors. Soc Indic Res 143, 1185–1217 (2019). https://doi.org/10.1007/s11205-018-2024-y

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11205-018-2024-y

Keywords

JEL Classification

Search

Navigation