Household Debt and Consumer Spending in Korea: Evidence from Household Data

23 Pages Posted: 4 Jan 2017  

Young Il Kim

Korea Development Institute (KDI)

Min Hwang

George Washington University - Department of Finance

Date Written: December 30, 2016

Abstract

Household debt in Korea raises concerns about the resilience of the economy due to its size and quality. Against this backdrop, we investigate if household leverage matters for private consumption in adverse economic environments even without severe financial disruptions. We find that the balance sheet positions in terms of the leverage ratio may weaken consumption growth. We also find that the depressive effect of debt on consumption may differ across types of consumer spending and household characteristics. In particular, the effects of indebtedness have been much stronger in relation to durable goods expenditures than in other areas. In addition, debtors in high income (wealth) groups have also shown downward adjustments in consumption even more so than low-income (wealth) groups. These findings imply that debtors’ precautionary behavior may serve as an important channel from leverage to consumer spending.

Keywords: Household debt, Consumption, Leverage

JEL Classification: D12, E21, E30

Suggested Citation

Kim, Young Il and Hwang, Min, Household Debt and Consumer Spending in Korea: Evidence from Household Data (December 30, 2016). KDI Journal of Economic Policy 38(4): 23-44. Available at SSRN: https://ssrn.com/abstract=2892478

Young Il Kim (Contact Author)

Korea Development Institute (KDI) ( email )

263 Namsejong-ro
Sejong-si 30149
Korea, Republic of (South Korea)

Min Hwang

George Washington University - Department of Finance ( email )

2023 G Street
Washington, DC 20052
United States

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