Welfare generosity, credit access and household debt: clarifying relationships through a new welfare-debt typology

This paper contributes to the political economy literature exploring the intersection of the welfare state and financialisation by addressing two important questions that have emerged from recent findings. First, why have both low generosity and high generosity environments been linked to higher levels of household debt? Second, how might this be explained by the variation in the role of debt across these very different contexts? To answer these questions, I develop a typology of Welfare State – Credit Contexts, which emerges from the interaction of two dimensions: welfare generosity and credit access. I test the implications of this model using welfare generosity and household liabilities data for a sample of OECD countries, spanning from the late 1990s to 2010. Using fixed effects models, I find that welfare generosity is negatively related to non-mortgage debt, with evidence that this relationship is conditional on credit access. In contrast, I find mortgage debt is consistently linked to levels of credit accessibility but fail to establish its relationship to welfare generosity. These results demonstrate the need for greater specificity when discussing the relationship between welfare generosity and household debt and for greater attention to the causes and consequences of different types of household debt.