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Household Indebtedness and Economic Growth (Empirical Analysis)

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  • Vratislav Izák

Abstract

One important aspect of the resulting indebtedness in full-fledged market economies is the mutual influence between different economic sectors. Therefore, alongside the government indebtedness, one must take into account also the debts of private agents, especially of households and non-financial corporations. In this paper our effort is concentrated on the household sector, especially the impacts on economic growth. We have gathered data for the time period 1995-2010 for the sample of 17 European OECD countries. The main descriptive statistics reveal high and still increasing indebtedness (ratio on the net disposable income) especially in Denmark, The Netherlands, Norway and Sweden and still low indebtedness in postsocialist countries. In panel regressions (fixed effects) we add loans as another explanatory variable into growth equation and examine the impacts on the growth rate of real GDP. The main result shows that a 10 percentage point increase in the ratio of household loans to the net disposable income is associated with about 30 basis point reduction in lagged economic growth. More profound looks give the study of both cross-specific and period-specific coefficients. Last but not least we have examined more homogenous panel of 13 countries putting aside 4 postsocialist countries.

Suggested Citation

  • Vratislav Izák, 2012. "Household Indebtedness and Economic Growth (Empirical Analysis)," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2012(3), pages 10-32.
  • Handle: RePEc:prg:jnlefa:v:2012:y:2012:i:3:id:3:p:10-32
    DOI: 10.18267/j.efaj.3
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    Cited by:

    1. Vratislav Izák, 2014. "Private and Public Debt," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2014(1), pages 4-21.

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    More about this item

    Keywords

    Economic growth; Households loans; Panel analysis (fixed effects);
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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