Determinants of US household debt: New evidence from the SCF

Rafael Wildauer ()

No PKWP1608, Working Papers from Post Keynesian Economics Society (PKES)

Abstract: This paper investigates the factors driving US household borrowing up to 2007. Two popular explanations are tested: First, the expenditure cascades hypothesis based on the assumption of debt-financed expenditures driven by an increasingly polarised distribution of income (‘keeping up with the Joneses’) and second, the hypothesis of Minskyian households which identifies climbing real estate prices as the decisive factor in household debt accumulation (re-mortgaging in order to cash in on capital gains and rising loan-to-value ratios in property purchases). This paper develops a method for obtaining individual household borrowing figures despite the lack of a panel structure from the Survey of Consumer Finances (SCF); it is the first to use the high quality information the SCF provides to investigate the impact of shifts in the income distribution and asset prices on household borrowing. The findings indicate that it is the interaction between the concentration of income at the top of the distribution and rising real estate prices which explains a large fraction of the increase in household borrowing prior to 2008. Therefore, neither the expenditure cascades hypothesis nor the hypothesis of Minskyian households are, in isolation, sufficient in order to understand household debt accumulation and thus the paper calls for a synthesis: future research should analyse the role of the distribution of income and asset prices together rather than separately.

Keywords: household debt; expenditure cascades; wealth effects; Minsky (search for similar items in EconPapers)
JEL-codes: D12 D31 E03 E12 (search for similar items in EconPapers)
Pages: 58
Date: 2016-05
New Economics Papers: this item is included in nep-pke and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://postkeynesian.net/media/working-papers/PKWP1608.pdf First version, 2016 (application/pdf)

Related works:
Working Paper: Determinants of US Household Debt: New Evidence from the SCF (2016)
Working Paper: Determinants of US Household Debt: New Evidence from the SCF (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pke:wpaper:pkwp1608

Access Statistics for this paper

More papers in Working Papers from Post Keynesian Economics Society (PKES) Contact information at EDIRC.
Bibliographic data for series maintained by Jo Michell ().