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Disentangling the effect of household debt on consumption

Author

Listed:
  • Rutger Teulings

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Bram Wouterse

    (Erasmus University Rotterdam)

  • Kan Ji

    (Rabobank)

Abstract

We estimate the relationship between household mortgage debt and consumption for the period 2006 to 2015. Using Dutch administrative data, we find that the average consumption of households with high mortgage debt prior to the financial crisis has decreased much more during the crisis than that of other households. We also find that the willingness or ability among households to use new mortgage debt to finance one-off high consumption decreased during the crisis. On the macro-level, the drop in Dutch consumption during the financial crisis is predominantly driven by households who were already in high debt. They are responsible for a 7 percentage points drop in macro-consumption at the worst point of the financial crisis. Within this group, the drop in consumption of households with negative home equity explains 6 percentage point of the total drop in macro-consumption.

Suggested Citation

  • Rutger Teulings & Bram Wouterse & Kan Ji, 2023. "Disentangling the effect of household debt on consumption," Empirical Economics, Springer, vol. 65(5), pages 2213-2239, November.
    • Handle: RePEc:spr:empeco:v:65:y:2023:i:5:d:10.1007_s00181-023-02428-4
    DOI: 10.1007/s00181-023-02428-4
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    References listed on IDEAS

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    Cited by:

    1. Sala, Hector & Trivin, Pedro, 2024. "Household finances, debt overhang and consumption patterns," Economic Modelling, Elsevier, vol. 139(C).

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    More about this item

    Keywords

    Consumption; High mortgage debt; Spending normalization; Financial crisis; Administrative data;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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