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Asymmetric Effects of Private Debt on Income Growth

Author

Listed:
  • Liaqat Zara

    (Department of Economics, University of Waterloo, Waterloo, Canada)

  • Ahmed Muhammad Farid

    (Department of Economics, University of Oxford, Oxford OX1 3UQ, UK)

Abstract

This paper uses a panel vector autoregressive model to study the differential effects of components of private debt on income growth for a large panel of countries. While household debt growth in a given period generally has a positive impact on income, this effect is much stronger for countries with relatively lower levels of income and household debt-to-GDP ratios. On the other hand, the responsiveness of income growth to an increase in corporate debt varies across countries, with a consistently negative impact in richer and/or more heavily indebted countries. A simple extension of our framework suggests the roles of investment and consumption spending in explaining the varying effects of household and corporate debt on growth. We carry out several exercises to illustrate the robustness of our results.

Suggested Citation

  • Liaqat Zara & Ahmed Muhammad Farid, 2023. "Asymmetric Effects of Private Debt on Income Growth," The B.E. Journal of Macroeconomics, De Gruyter, vol. 23(1), pages 337-373, January.
    • Handle: RePEc:bpj:bejmac:v:23:y:2023:i:1:p:337-373:n:14
    DOI: 10.1515/bejm-2022-0004
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    More about this item

    Keywords

    private debt; debt threshold; household debt; panel VAR;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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