Disentangling the effect of household debt on consumption

Rutger Teulings (), Bram Wouterse and Kan Ji
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Rutger Teulings: CPB Netherlands Bureau for Economic Policy Analysis

No 395, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: We estimate the contemporaneous relationship between household debt and consumption for the period 2006 to 2015. Using Dutch administrative data, we fi nd that the average consumption of households with high debt has decreased much more during the crisis than that of other households. We disentangle this into an effect through the availability of credit for direct consumption and an effect through household debt overhang. On the micro level, the consumption drop is the sharpest for the households who are less able or willing to fi nance one-off high consumption with new debts after the crisis. On the macro level, however, the drop in consumption of households who have negative home equity for a longer period had a much bigger impact on macro consumption, because their number sharply increased during the crisis. Our results suggest that precautionary savings motives among the highly indebted households contributed most to the consumption decline during the crisis.

JEL-codes: D12 D14 E21 (search for similar items in EconPapers)
Date: 2019-04
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (4)

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