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The consumption response to household leverage in China: The role of investment at household level

Dongyang Zhang and Rui Guo

International Review of Financial Analysis, 2020, vol. 71, issue C

Abstract: This paper examines whether leverage can improve household consumption and facilitate the consumption upgrading in China. By employing two rounds of Chinese household surveys, our econometric results show that, while household leverage can increase the level of total household consumption expenditures, it can not significantly drive consumption upgrading. Moreover, we explore the impact of household investment factors on the relationship between leverage and consumption. We find that investment exerts a crowding-out effect, while the joint effect of household investment and income can facilitate the relationship between leverage and household consumption since income factors can serve as compensation. Overall, this paper provides new evidence in the context of emerging markets, offering a more comprehensive understanding the relationship between household leverage and consumption.

Keywords: Household leverage; Household consumption; Investment crowd-out; Income compensation (search for similar items in EconPapers)
JEL-codes: D10 D12 D14 D15 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:71:y:2020:i:c:s1057521920302246

DOI: 10.1016/j.irfa.2020.101580

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