Italian households' debt: determinants of demand and supply
AbstractThis 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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Bibliographic InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 454.
Date of creation: Oct 2002
Date of revision:
household debt; enforcement costs;
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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