The Impact of Household Debt on Food Expenditure and Its Mechanism in Urban China

Yanyan Huang () and Fuzhong Chen ()
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Yanyan Huang: Huaqiao University
Fuzhong Chen: University of International Business and Economics

Journal of Family and Economic Issues, 2022, vol. 43, issue 3, No 4, 466-475

Abstract: Abstract This paper explores the impact and mechanisms of household debt on food expenditure. This study centers on panel data from the China Family Panel Studies (2012, 2014, and 2016) and employs a fixed-effect panel model to demonstrate that household debt can significantly reduce food expenditure share. In addition, this conclusion is quite robust regardless of changing index definitions, or the estimation method. Particularly, informal debt significantly decreases food expenditure share at home. This study postulates that a decline in the Engel’s coefficient caused by debt may not coincide with improved household welfare. It concludes that the negative influence of debt on food expenditure is through two mechanisms: the asset-income effect and liquidity constraints. Finally, a finding aligns with the assertation of Banks et al. (79:527–539,1997) that the relationship between the Engel’s coefficient and income will present an inverted U-shaped pattern during the rapid debt growth period in urban China.

Keywords: Household debt; Food expenditure; Engel’s coefficient; Liquidity constraints; D12; E21; E44 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10834-021-09776-2

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