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Household debt and debt to income: The role of business ownership

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  • Rivero Wildemauwe, José Ignacio
  • Sanroman, Graciela

Abstract

This paper studies private business ownership as a source of heterogeneity of households’ indebtedness. We analyse micro-data on the debt side of household balance sheets in a small economy, with an underdeveloped financial system. We find that households’ behaviour in the credit markets varies substantially between employees and entrepreneurs; and that separately considering formal and informal business ownership is first-order. Our results indicate that the probability of being indebted is higher for employees. We also show that debt to income elasticity differs markedly across types of households, with employees (informal business owners) being the most (least) sensitive to income variations. Finally, we go beyond the mean, and find important differences between average elasticities and those at different quantiles of debt for formal entrepreneurs, while no divergences are detected for employees or informal business owners.

Suggested Citation

  • Rivero Wildemauwe, José Ignacio & Sanroman, Graciela, 2022. "Household debt and debt to income: The role of business ownership," The Quarterly Review of Economics and Finance, Elsevier, vol. 83(C), pages 52-68.
    • Handle: RePEc:eee:quaeco:v:83:y:2022:i:c:p:52-68
    DOI: 10.1016/j.qref.2021.11.001
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    More about this item

    Keywords

    Household finance; Household debt; Debt to income elasticities;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G0 - Financial Economics - - General

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