Debt and Depression: Evidence on Causal Links and Social Stigma Effects
33 Pages Posted: 5 Sep 2011
Date Written: September 5, 2011
Using individual-level panel data, this paper examines the relationship between problem debt and psychological health. Individuals exhibiting problems repaying their debt obligations also exhibit much worse psychological health, by either subjective or objective measures. However, selection into problem debt on the basis of poor psychological health accounts for much of this difference. The causality between problem debt and psychological health may be two-way. Local house price movements exogenous to individual households are used to establish the causality from problem mortgage debt to psychological health. In addition, the social stigma effects of problem debt are investigated using local bankruptcy and repossession rates as indicators of the local prevalence of problem debt in a reference group population. Results indicate there are sizeable causal links between problem debt and psychological health.
Keywords: debt, over-indebtedness, depression, reference group effects
JEL Classification: I10, D14
Suggested Citation: Suggested Citation