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The Joneses’ income and debt market participation: Empirical evidence from bank account data

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  • Berlemann, Michael
  • Salland, Jan

Abstract

In this paper we study whether the decision to raise debt is related to average income in the own residential area. Based on a unique dataset of bank account data we find that bank customers are more likely to hold collateralized and uncollateralized loans and to make use of the overdraft facility when the comparison income is higher, even after controlling for socio-demographic and financial characteristics. This indicates that conspicuous consumption is partly financed by debt.

Suggested Citation

  • Berlemann, Michael & Salland, Jan, 2016. "The Joneses’ income and debt market participation: Empirical evidence from bank account data," Economics Letters, Elsevier, vol. 142(C), pages 6-9.
    • Handle: RePEc:eee:ecolet:v:142:y:2016:i:c:p:6-9
    DOI: 10.1016/j.econlet.2016.02.030
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    References listed on IDEAS

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    1. Peter Kuhn & Peter Kooreman & Adriaan Soetevent & Arie Kapteyn, 2011. "The Effects of Lottery Prizes on Winners and Their Neighbors: Evidence from the Dutch Postcode Lottery," American Economic Review, American Economic Association, vol. 101(5), pages 2226-2247, August.
    2. Dimitris Georgarakos & Michael Haliassos & Giacomo Pasini, 2014. "Household Debt and Social Interactions," The Review of Financial Studies, Society for Financial Studies, vol. 27(5), pages 1404-1433.
    3. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 963-1002.
    4. McCracken, Grant, 1986. "Culture and Consumption: A Theoretical Account of the Structure and Movement of the Cultural Meaning of Consumer Goods," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 13(1), pages 71-84, June.
    5. Chris Hunt, 2014. "Household debt: a cross-country perspective," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 77, pages 1-13, October.
    6. Kaustia, Markku & Knüpfer, Samuli, 2012. "Peer performance and stock market entry," Journal of Financial Economics, Elsevier, vol. 104(2), pages 321-338.
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    Cited by:

    1. Stefan Jestl, 2019. "The Impact of Income Inequality on Household Indebtedness in Euro Area Countries," wiiw Working Papers 173, The Vienna Institute for International Economic Studies, wiiw.
    2. Achoja Roland Onomu, 2024. "Determinants of Indigenous Floral Foods’ Commercialization among Rural Households: The Outcome of Double and Triple Hurdles in Amathole District Rural Community," Sustainability, MDPI, vol. 16(19), pages 1-25, September.
    3. Mark Setterfield & Y.K. Kim, 2024. "How financially fragile can households become? Household borrowing, the welfare state, and macroeconomic resilience," Review of Evolutionary Political Economy, Springer, vol. 5(1), pages 121-151, June.
    4. Nikolaos Mylonidis & Lefkothea-Georgia Oikonomou, 2021. "Tracing the impact of peers on households’ economic behavior," Economic Change and Restructuring, Springer, vol. 54(3), pages 655-681, August.
    5. Mark Setterfield & Yun K Kim, 2020. "Varieties of capitalism, increasing income inequality and the sustainability of long-run growth," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 44(3), pages 559-582.
    6. Kim Nguyen, 2022. "Do Australian Households Borrow to Keep up with the Joneses?," RBA Research Discussion Papers rdp2022-06, Reserve Bank of Australia.
    7. Shakeba Foster, 2023. "Income inequality and household debt: Examining the impact of relative income on formal and informal debt in South Africa," WIDER Working Paper Series wp-2023-37, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    Household debt; Comparison income; Keeping up with the Joneses; Behavioral finance; Conspicuous consumption; Peer effects;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis

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