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Consumer over-indebtedness in the EU: measurement and characteristics

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Author Info

  • Gianni Betti
  • Neil Dourmashkin
  • Mariacristina Rossi
  • Ya Ping Yin

Abstract

Purpose – This paper seeks to measure and characterise the extent of consumer over-indebtedness among the European Union (EU) member states. Design/methodology/approach – The study evaluates alternative measures of over-indebtedness on the basis of the permanent-income/life-cycle theories of consumption behaviour and adopts a subjective approach in identifying over-indebted households on the basis of European household survey data. It then investigates the main characteristics of over-indebted households. Findings – The empirical results reveal that over-indebtedness was a significant problem across EU member states in the mid-1990s. Moreover, an inverse relationship emerged between the extent of the over-indebtedness problem and the extent of consumer borrowing across EU countries. Research limitations/implications – Anecdotal evidence seemed to suggest that some main factors behind over-indebtedness could be “market failure” on the credit market, the existence of liquidity constraints and lack of access to formal credit markets. However, a comprehensive and rigorous investigation of the extent and determinants of over-indebtedness can only be achieved through analysis of more extended household data sets, particularly panel data. Practical implications – The EU credit markets exhibited certain symptoms of “market failure”, on the one hand, and there was also need for further financial liberalisation in the Southern European countries, on the other hand. Originality/value – The paper provides a first systematic evaluation of existing measures of consumer over-indebtedness as well as the first EU-wide empirical investigation of the problem. It should provide valuable information to the credit industry as well as financial regulatory bodies.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

Volume (Year): 34 (2007)
Issue (Month): 2 (May)
Pages: 136-156

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Handle: RePEc:eme:jespps:v:34:y:2007:i:2:p:136-156

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Related research

Keywords: Consumers; Debt; European Union;

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Citations

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Cited by:
  1. Giovanni D'Alessio & Stefano Iezzi, 2013. "Household over-indebtedness: definition and measurement with Italian data," Questioni di Economia e Finanza (Occasional Papers) 149, Bank of Italy, Economic Research and International Relations Area.
  2. Paulina Anioła & Zbigniew Gołaś, 2012. "Differences in the Level and Structure of Household Indebtedness in the EU Countries," Contemporary Economics, University of Finance and Management in Warsaw, vol. 6(1), March.
  3. Ivana Herceg & Danijel Nestić, 2012. "A New Cluster-Based Financial Vulnerability Indicator: The Analytical Concept and its Application for Stress Testing in a Post-Socialist Economy," wiiw Balkan Observatory Working Papers 100, The Vienna Institute for International Economic Studies, wiiw.
  4. Keese, Matthias, 2012. "Who feels constrained by high debt burdens? Subjective vs. objective measures of household debt," Journal of Economic Psychology, Elsevier, vol. 33(1), pages 125-141.

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