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Household income requirements and financial conditions

Author

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  • G. C. Lim

    (The University of Melbourne)

  • Sarantis Tsiaplias

    (The University of Melbourne)

Abstract

Understanding the income requirements of households is important for examining why households become financially stressed and liquidity constrained. Our econometric approach relies on actual incidences of household-specific financial stress to determine household income requirements. Using an extensive longitudinal dataset of Australian households, we find significant lifecycle effects in income requirements and identify the household types which benefit or are disadvantaged by the typical 30% debt to income measure of financial stress. We also find that, in general, households are locked into tight spending patterns such that, with the exception of households in the top income quintile, financial stress occurs when negative income shocks exceed 30%.

Suggested Citation

  • G. C. Lim & Sarantis Tsiaplias, 2019. "Household income requirements and financial conditions," Empirical Economics, Springer, vol. 57(5), pages 1705-1730, November.
    • Handle: RePEc:spr:empeco:v:57:y:2019:i:5:d:10.1007_s00181-018-1512-x
    DOI: 10.1007/s00181-018-1512-x
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    More about this item

    Keywords

    Heterogeneity; Income; Consumption; Households; Financial stress; Debt to income;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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