Household debt and income inequality: evidence from Italian survey data

David Loschiavo

No 1095, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Does regional income inequality affect a household’s likelihood of being indebted? This question is addressed by using survey data on Italian households. The analysis shows that inequality in the regional income distribution has a negative effect on the probability of being indebted. In addition, richer households living in regions with greater income inequality have a greater likelihood of being indebted than similarly rich households residing in regions with low income inequality (and vice versa for poorer households). The study suggests that supply factors are more important than demand factors in explaining this result. These findings are consistent with the latest survey-based evidence drawn from US data which suggests that banks may use local income inequality and a household’s position in the income distribution to make inferences about an applicant’s underlying default risk. These results hold after controlling for socio-demographic differences, different types of debt, unobserved household heterogeneity using panel data and a number of robustness checks.

Keywords: income inequality; household debt; credit rationing; Great Recession; regional data (search for similar items in EconPapers)
JEL-codes: D14 D63 G01 G21 R10 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-eur and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Household debt and income inequality: Evidence from Italian survey data (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1095_16

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