Household Debt and Social Interactions
University of Frankfurt; European Central Bank (ECB) - Directorate General Research; Center for Financial Studies (CFS)
Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Center for Financial Studies (CFS); CEPR; Goethe University Frankfurt - House of Finance
Ca Foscari University of Venice - Department of Economics; Netspar; University of Venice - SSAV
January 18, 2013
Debt-induced crises, including the subprime, are usually attributed exclusively to supply-side factors. We uncover an additional factor contributing to debt culture, namely social influences emanating from the perceived average income of peers. Using unique information from a representative household survey of the Dutch population that circumvents the need to define the social circle, we consider collateralized, consumer, and informal loans. We find robust social effects on borrowing — especially among those who consider themselves poorer than their peers — and on indebtedness, suggesting a link to financial distress. We check the robustness of our results using several approaches to rule out spurious associations and handle correlated effects.
Number of Pages in PDF File: 46
Keywords: Household finance, household debt, social interactions, mortgages, consumer credit, informal loans
JEL Classification: G11, E21working papers series
Date posted: March 2, 2012 ; Last revised: January 20, 2013
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