Do households with debt problems spend less?

Reamonn Lydon ()

No 02/EL/13, Economic Letters from Central Bank of Ireland

Abstract: At the end of 2012, almost one-fifth of owner-occupier mortgages were in arrears. A further five per cent not in arrears were classified as "restructured" loans. This Economic Letter looks at the impact of financial distress on household expenditure patterns by comparing the behaviour of households in mortgage distress with similar households in the general population. It finds that, controlling for a wide range of observable household characteristics, including income levels and household composition, households with debt problems spend 18 per cent less on average. We conclude that the mortgage arrears problem exerts a significant drag on aggregate consumption in the economy.

Date: 2013-05
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