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Italian households' debt: determinants of demand and supply

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Author Info
Silvia Magri () (Bank of Italy, Economic Research Department)

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Abstract

This paper analyzes the determinants of Italian householdsÂ’ participation in the debt market, considering both demand and supply effects and using the Bank of ItalyÂ’s Survey of Household Income and Wealth. The probability of debt is positively influenced by age (until 35 years), which essentially acts as a demand factor. Among the economic variables, the role of income is important: it shows a positive correlation with the probability of debt, determined by forces acting in the same direction on both sides of the market. The uncertainty of income reduces the demand for loans, with the exception of self-employed workers, who are nevertheless subject to very rigid evaluation by lenders. Living in very small municipalities negatively affects loan demand, probably because of higher entry costs in the debt market. Education influences both the demand side, through entry costs, and banksÂ’ evaluation. Residence is a crucial parameter: beyond the negative impact of a greater economic risk, living in regions where banks face higher enforcement costs increases the probability that the loan demand is not accepted. The final part of the paper considers the size of desired debt, which seems positively linked to net wealth and future income profile. The recovered share of loans in the case of default has a positive effect on desired debt. In general, enforcement costs have increased in importance in the recent period.

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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 454.

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Date of creation: Oct 2002
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Handle: RePEc:bdi:wptemi:td_454_02

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Keywords: household debt enforcement costs

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Find related papers by JEL classification:
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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Cited by:
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  1. Andrea Brandolini & Giovanni D’Alessio & Luigi Cannari & Ivan Faiella, 2004. "Household Wealth Distribution in Italy in the 1990s," Economics Working Paper Archive wp414, Levy Economics Institute, The. [Downloadable!]
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  2. Jonathan Crook & Stefan Hochguertel, 2007. "US and European Household Debt and Credit Constraints," Tinbergen Institute Discussion Papers 07-087/3, Tinbergen Institute. [Downloadable!]
  3. Herrala, Risto & Kauko, Karlo, 2007. "Household loan loss risk in Finland – estimations and simulations with micro data," Research Discussion Papers 5/2007, Bank of Finland. [Downloadable!]
  4. Fernando Nieto, 2007. "The determinants of household credit in Spain," Banco de España Working Papers 0716, Banco de España. [Downloadable!]
  5. Paiella, Monica & Pozzolo, Alberto Franco, 2007. "Choosing Between Fixed and Adjustable Rate Mortgages," Economics & Statistics Discussion Papers esdp07033, University of Molise, Dept. SEGeS. [Downloadable!]
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