Who Borrows and Who May Not Repay?
AbstractWe use Household Budget Survey data to analyze the evolution of the household credit market in the Czech Republic over the period 2000–2008. We next merge our data with the Statistics on Income and Living Conditions in 2005–2008, in order to test the validity of the standard debt burden measure as a predictor of default. We propose an alternative indicator – the adjusted debt burden (ADB), defined as the ratio of loan repayments to discretionary income, constructed as net income minus the living minimum, which turns out to be a superior predictor of default risk. Limited by the data, we use a fairly broad concept of default, namely, the inability to make loan repayments on time. Based on the distribution of default risk across the levels of the adjusted debt burden, we suggest that a 30% ADB threshold should be used as the definition of overindebtedness, with an average default risk of 17%. Finally, we show that overindebtedness and local economic shocks are closely related, suggesting that default risk should be always considered in the context of regional economic conditions.
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Bibliographic InfoPaper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp443.
Date of creation: Jul 2011
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household credit; debt burden; repayment; regional default risk;
Other versions of this item:
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- R29 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-05 (All new papers)
- NEP-RMG-2011-09-05 (Risk Management)
- NEP-TRA-2011-09-05 (Transition Economics)
- NEP-URE-2011-09-05 (Urban & Real Estate Economics)
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