Relative Income, Indebtedness and Defaults: An Empirical Characterization

39 Pages Posted: 12 Oct 2021 Last revised: 2 Dec 2021

See all articles by Marieke Bos

Marieke Bos

Swedish House of Finance - Stockholm School of Economics; Vrije Universiteit Amsterdam; Consumer Finance Institute, Federal Reserve Bank of Philadelphia; Tinbergen Institute

Mats Levander

affiliation not provided to SSRN

Erik von Schedvin

Sveriges Riksbank

Date Written: October 12, 2021

Abstract

Using panel data on individual borrowing characteristics and neighborhood income, we assess the impact of relative income on indebtedness and payment delinquencies. We find that a worsening in relative income vis-à-vis similarly aged neighbors leads to higher indebtedness, primarily due to shifts in consumer debt. This relationship is not accompanied by a rise in loan delinquencies. However, we document over-indebtedness and financial distress for certain demographic subgroups that are presumably more responsive to peer influences (e.g., younger individuals). Our analysis is carefully structured to account for selection effects and omitted variables.

Keywords: Peer Effects, Consumer Credit, Defaults

JEL Classification: G41, D12, D14, D15, D91

Suggested Citation

Bos, Marieke and Levander, Mats and von Schedvin, Erik, Relative Income, Indebtedness and Defaults: An Empirical Characterization (October 12, 2021). Swedish House of Finance Research Paper No. 21-23, Available at SSRN: https://ssrn.com/abstract=3941294 or http://dx.doi.org/10.2139/ssrn.3941294

Marieke Bos (Contact Author)

Swedish House of Finance - Stockholm School of Economics ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

HOME PAGE: http://www.mariekebos.org

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Consumer Finance Institute, Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Mats Levander

affiliation not provided to SSRN

Erik Von Schedvin

Sveriges Riksbank ( email )

Brunkebergstorg 11
SE-103 37 Stockholm
Sweden

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