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Household Debt and Social Interactions

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  • Georgarakos, Dimitris
  • Haliassos, Michalis
  • Pasini, Giacomo

Abstract

Debt-induced crises, including the subprime crisis, are usually attributed exclusively to supply-side factors. We examine the role of social influences on debt culture, emanating from perceived average income of peers. Utilizing unique information from a household survey, representative of the Dutch population, that circumvents the issue of defining the social circle, we consider collateralized, consumer, and informal loans. We find robust social effects on borrowing - especially among those who consider themselves poorer than their peers - and on indebtedness, suggesting a link to financial distress. We employ a number of approaches to rule out spurious associations and to handle correlated effects.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9238.

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Date of creation: Dec 2012
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Handle: RePEc:cpr:ceprdp:9238

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Keywords: consumer credit; household debt; Household finance; informal loans; mortgages; social interactions;

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References

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The social pressure of overborrowing
    by Economic Logician in Economic Logic on 2013-07-01 13:51:00
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Cited by:
  1. Lahno, Amrei M. & Serra-Garcia, Marta, 2012. "Peer Effects in Risk Taking," Discussion Papers in Economics 14309, University of Munich, Department of Economics.
  2. Fares Al-Hussami & Álvaro Martín Remesal, 2012. "Current Account Imbalances and Income Inequality: Theory and Evidence," Kiel Advanced Studies Working Papers 459, Kiel Institute for the World Economy.
  3. Brown, Sarah & Ghosh, Pulak & Taylor, Karl, 2014. "Household Finances and Social Interaction: Bayesian Analysis of Household Panel Data," IZA Discussion Papers 8301, Institute for the Study of Labor (IZA).
  4. Haliassos, Michalis & Jansson, Thomas & Karabulut, Yigitcan, 2014. "Incompatible European partners? Cultural predispositions and household financial behavior," SAFE Working Paper Series 58, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.

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