Exploratory Study of Comparison Income and Individual Debt Using British Household Panel Survey
Review of Economic Analysis 10 (2018), 181-202
22 Pages Posted: 3 Jun 2019
Date Written: August 1, 2018
The famous saying “keeping up with the Joneses” is a generational behavior that is still deeply interwoven in the behavioral fabric of our modern-day society. This paper aims to address and contribute to the existing literature by investigating the determinants of individual non-mortgage debt, focusing on the role of comparison income. It also seeks to overcome certain empirical shortcomings by applying Tobit, fixed effects, and Tobit fixed effects regression models to the UK dataset. The study is motivated by previous research, which suggested the aspiration of borrowers is influential in the debt-decision process. Previous studies did not use empirical methods or UK data, however. Comparison income (the measure of the borrowers’ aspiration) is derived from the Mincer earnings equation. Tobit regression is applied in the cross-section analysis and is pertinent considering the censored nature of the dependent variable. In the panel analysis, fixed effects and Tobit fixed effects are used to control for unobserved attributes of sampled individuals that may affect demand for debt. Comparison income and non-mortgage debt as well as other economic and demographic variables are positively and significantly associated. The relationship between comparison income and non-mortgage debt suggests that latter may be incurred for status-maintenance purposes.
Keywords: Non-mortgage debt, comparison income, status maintenance, consumer behavior, Tobit, fixed effects, panel data
JEL Classification: D12, D14, D19
Suggested Citation: Suggested Citation