A Bigger House at the Cost of an Empty Fridge? The Effect of Households' Indebtedness on Their Consumption: Micro-Evidence Using Belgian Hfcs Data

60 Pages Posted: 22 Mar 2021 Last revised: 18 Feb 2023

See all articles by Philip Du Caju

Philip Du Caju

National Bank of Belgium

Guillaume Périlleux

Université Libre de Bruxelles (ULB)

Francois Rycx

Université Libre de Bruxelles (ULB) - Department of Applied Economics (DULBEA); IZA Institute of Labor Economics

Ilan Tojerow

Université Libre de Bruxelles (ULB) - Department of Applied Economics (DULBEA); IZA Institute of Labor Economics

Abstract

This paper investigates the potentially non-linear relation between households' indebtedness and their consumption between 2010 and 2014 in Belgium, using panel data from the two waves of the Household Finance and Consumption Survey. Unlike previous studies, we find a negative effect of households' indebtedness on their consumption, even in the absence of negative shock on their assets. Our findings suggest that, without such a shock, it is the day-to-day sustainability of the debt, rather than its overall sustainability, that leads households to reduce their consumption. We perform as well a threshold analysis, whose results suggest that households should not have a debt-service-to-income ratio greater than 30%. The effect appears to be robust to various specifications, to result from a trade-off between housing and consumption, and to be more prevalent among more fragile households.

Keywords: debt-service-to-income, consumption, indebtedness, households, non-linear heterogeneous effects

JEL Classification: D12, D14, E21

Suggested Citation

Du Caju, Philip and Périlleux, Guillaume and Rycx, François and Tojerow, Ilan, A Bigger House at the Cost of an Empty Fridge? The Effect of Households' Indebtedness on Their Consumption: Micro-Evidence Using Belgian Hfcs Data. IZA Discussion Paper No. 14193, Available at SSRN: https://ssrn.com/abstract=3808456 or http://dx.doi.org/10.2139/ssrn.3808456

Philip Du Caju (Contact Author)

National Bank of Belgium ( email )

Research Department
Boulevard de Berlaimont 14
B-1000 Brussels, 1000
Belgium

Guillaume Périlleux

Université Libre de Bruxelles (ULB)

François Rycx

Université Libre de Bruxelles (ULB) - Department of Applied Economics (DULBEA) ( email )

Ave. Franklin D Roosevelt, 50
Brussels, B-1050
Belgium
+32 0 2 6504110 (Phone)
+32 0 2 6503825 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Ilan Tojerow

Université Libre de Bruxelles (ULB) - Department of Applied Economics (DULBEA) ( email )

Ave. Franklin D Roosevelt, 50
Brussels, B-1050
Belgium

HOME PAGE: http://homepages.ulb.ac.be/~itojerow/

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
52
Abstract Views
377
Rank
777,856
PlumX Metrics