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.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.