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Unsustainable Household Debt: Problems of Measurement

Unsustainable Household Debt: Problems of Measurement
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Year:    2020

Author:    Gibbons, Damon

Vierteljahrshefte zur Wirtschaftsforschung, Vol. 89 (2020), Iss. 1 : pp. 101–114

Abstract

Summary: In the wake of the Global Financial Crisis, a significant research effort has been made to better understand the links between household debt levels, financial stability risks, and the ongoing implications of the ‘debt overhang’ for economic growth. However, accurately measuring the household debt burden remains problematic. Aggregate measures of household indebtedness (e. g. household liabilities relative to income) fail to fully capture the debt servicing burdens of households, particularly in periods when real incomes are declining (as has been the case in the UK in recent years). They also provide no insight into the distribution of debt burdens, which may be important for both future financial stability and economic growth.

We attempt to address this problem by combining a new analysis of aggregate data with insights gleaned from household debt surveys. We first construct a new measure of debt interest payments as a percentage of the overall household surplus from the aggregate data. This indicates a significant increase in household debt burdens between 2016 and 2018. We test the validity of this measure by analysing household debt surveys over the period, and report on the most affected households. The findings support a case for a lowering of the thresholds used in official measures of financial vulnerability and over-indebtedness and for greater impetus in policymaking to relieve the financial pressures of households in debt.

Journal Article Details

Publisher Name:    Global Science Press

Language:    English

DOI:    https://doi.org/10.3790/vjh.89.1.101

Vierteljahrshefte zur Wirtschaftsforschung, Vol. 89 (2020), Iss. 1 : pp. 101–114

Published online:    2020-01

AMS Subject Headings:    Duncker & Humblot, Duncker & Humblot

Copyright:    COPYRIGHT: © Global Science Press

Pages:    13

Keywords:    D14 D18 G21 G28 G51 Household debt consumer credit mortgage loans over-indebtedness debt burden sustainable debt financial stability financial vulnerability

Author Details

Gibbons, Damon

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